Using the accumulated funds in the second pension pillar will not solve the deficit in the first pillar, and could reduce the future incomes of insured individuals. Former Social Minister Hristina Hristova and Vasil Velev, chairman of the General Assembly of the Bulgarian Industrial Capital Association, agreed on this position.
The two commented on the dispute over possible changes to the pension model and budget plans for next year on the “Your Day” programme on NOVA NEWS.
Hristova said she would not like to comment on proposals based on rumours and speculation. However, she warned that if people were expected to end up with twice as little in pension savings, this would be a serious problem.
According to her, the second pillar is particularly important for younger people, who have 35–40 years until retirement. Accumulated personal funds and an additional pension can increase the income replacement rate.
The difference between the Bulgarian and developed models
Vasil Velev said that Bulgaria should develop the second and third pillars instead of using pension fund assets to cover current budget deficits. “We must strengthen and develop the second and third pillars,” he said.
According to data cited by Velev, the assets of pension funds in Bulgaria amount to around 15% of gross domestic product. In a developed pension model, this ratio is around 50% or higher.
The chairman of the General Assembly of the Bulgarian Industrial Capital Association also pointed to the possibility of investing the funds in infrastructure projects. In his view, this would allow pension funds to generate returns while investments support the country’s development.
Demographic pressure remains
Hristina Hristova also highlighted the demographic picture. Projections through 2040 show that for every 100 people leaving the labour market due to retirement, only 69 new workers will enter it.
According to Hristova, transferring funds from the second pillar to the first will not change this pressure. She warned that people could be left without their personal savings, without this leading to a lasting solution to the deficit in the pay-as-you-go pension system.