The change in the second pension pillar presents people with a choice - in which sub-fund their accumulated funds should be managed. At the moment, interest is mainly focused on dynamic sub-funds, but activity remains moderate. The reason is that the choice is not mandatory - if a person does not take action, it will be distributed according to their age. What should insured people know before November 30, is there a risk that the dynamic sub-fund will turn pension savings into a "collateral" and how should they react to declines in financial markets? Why should age determine investment risk and what is the international experience with multi-funds? Evelina Miltenova, Chairwoman of the Management Board of the Bulgarian Association of Supplementary Pension Insurance Companies (BADDPO), spoke to FACTI.
- Ms. Miltenova, what is the activity so far - how many people have already taken action to transfer their second pension account to a sub-fund and is there any interest at all?
- There is interest, but I would say that at this stage the activity is rather moderate - and this does not surprise me. The reason is very simple: a person is not faced with a situation of “either you choose something or you lose something“. If a person does not make an active choice, the law has a reasonable solution and directs him to a sub-fund according to his age.
That is why some people obviously say: “What the law provides for my age is suitable for me and I do not need to take an additional step“. This is exactly how we commented on the first observations from the campaign.
At the moment, I would not quote a specific total figure until we have final consolidated data from all companies - interest in dynamic sub-funds prevails.
There is interest, activity is moderate for now, and this is completely logical. Choice is a right, not an obligation - the person who does not submit an application loses nothing and will be distributed according to their age. For me, the more important indicator is not how many applications will be submitted at any cost, but for people to understand where their money is, how much they have accumulated and how it will be managed from January 1. And here I would turn the conversation: for the first time we are talking so broadly about the personal pension account. In universal funds alone, we are talking about over 4 million people. This in itself is a very important opportunity to increase financial literacy.
The most important thing is for people to know three things. The money in the second pillar is in a personal account, is invested and inherited. Choosing a sub-fund is a right, not an obligation. And the meaning of multi-funds is very simple - when you are young, time should work for you, and when retirement approaches, to protect what you have already accumulated. Choice, time and protection - this is the essence of the change.
- What exactly should a person do by November 30?
- First, I would reassure people: November 30 is the deadline for the initial active choice, which requires a different distribution than the one provided for by age, it is not a deadline after which you lose money or rights. If a person wants to choose a sub-fund different from the one they will be in according to their age, they should contact the pension company they are already insured with and submit an application using the template.
My advice is in three steps:
-- check where you are insured;
-- see what you have accumulated;
-- talk to your pension company
Only then decide whether you want a different option than the one that the law provides for your age anyway. Different companies also offer different channels - an office, an intermediary, and in some cases an electronic client portal. For example, some allow you to choose online or through their own applications/portals.
First information, then choice - not the other way around.
You don't lose either your money or your rights if you miss out. You will be allocated according to age, but after 12 months you will again have the opportunity to choose both a sub-fund and a pension company.
- How many people really understand what a dynamic, balanced and conservative sub-fund is?
- It is not necessary for everyone to become a financial expert. If we start explaining with stocks, bonds, volatility and interest rates, we will lose people. People do not have to choose where to invest - companies do it for them, with well-diversified investments. The insured choose a sub-fund.
- Which is more dangerous - to choose wrongly or not to choose?
- Here I would say something that may sound strange at first glance: it is more dangerous to make a hasty choice that you do not understand than not to make an active choice.
Because if you do nothing, the system does not leave you without a decision. The law applies the so-called life cycle investing:
-- up to 50 years – dynamic subfund;
-- after 50 up to three years before retirement age – balanced;
-- the last three years until retirement – conservative
That is, the lack of an application is not a “mistake“. It is a choice to follow the automatic age model. The real mistake would be, for example, a person with a few years until retirement to chase the last good yield on the markets just because he saw it in an advertisement or in the news. Retirement savings are not a competition to guess what the stock market will do next month.
It is important for your readers to know that choice is a right, not an obligation, and in the absence of choice, one does not lose either funds or rights.
We advise people to first inform themselves and then decide whether the age model is suitable for them.
- What does the experience of Croatia, the Baltic States and Chile show?
- The most important international lesson in these countries, and especially in Croatia, which is close to us, is that age matters in pension investing. The explicit recommendations of the OECD are similar. Croatia has also been working with pension fund categories A, B and C since 2015, with different investment risks. The Croatian regulator has supported the three categories and this model has been working for years and quite successfully. We had the chance to learn from them and even adjust our changes to the Social Security Code (SSC) for multi-funds so as not to allow their reported weaknesses.
Different countries adopt their own approaches. Some reduce the risk much earlier, others reported a mistake from the liberalization of withdrawals from the second pillar, because part of the insured's funds went mainly for current consumption and repayment of consumer debts, and in addition, they raised inflation rates. This should not be allowed due to the risk of a drastic reduction in future pension savings and the effect on future budget expenditures. The examples show why pension savings should be viewed with a horizon of decades and invested systematically, and not as an ordinary savings account.
It is important that countries are different, but the lesson is the same - a young person has time to bear more investment risk, and as retirement approaches, this risk should decrease. The multi-fund system is not a Bulgarian experiment - the Bulgarian solution is based on an internationally established logic of following investment according to age.
- What can the multi-fund really change in the future pension?
- In my opinion, this is the heart of the reform. Until now, a 25-year-old and a 60-year-old person were practically in the same investment model. But they have a completely different resource - time. A 25-year-old has 40 years, during which several crises and several recoveries can occur. For him, overly cautious investing also carries a risk - his money may not grow enough and inflation may gradually eat away at its purchasing value. A 60-year-old person does not have this horizon. For him, a major crisis immediately before retirement can be much more painful. Therefore, the strategy gradually becomes more protective.
This does not mean that we can promise someone a pension of a certain amount today. We can say something else: if the long horizon is used more effectively, there is a better opportunity to accumulate more capital. And the greater accumulated resource in the accounts, other things being equal, means a higher future pension.
Changing with sub-funds with different investment risk cannot promise a large pension. It gives a better opportunity for time to work for the young person and for the accumulated to be protected when retirement approaches.
- Dynamic fund - aren't we turning the pension into a pledge?
- Absolutely not. I know that there are similar statements, but they only mislead people and unnecessarily arouse fears in them that will ultimately harm them financially. It is populism to present pension investing as a game of “black lottery“. Pension funds employ qualified specialists who know what they are doing - they don't bet on one stock, one company or one country. The portfolio is diversified and operates under serious legal restrictions and supervision. The pension companies themselves have an interest in working in a way that brings the highest profitability to their clients - that is why people can be calm about their savings.
- Is the information campaign serious enough?
- This is a huge communication task, because we are talking about over four million people in universal funds alone. Pension companies already inform their clients through websites, offices, electronic channels, intermediaries and their own campaigns. The members of the Bulgarian Association of Supplementary Pension Insurance Companies (BADDPO) are active and this is the place to thank the media, which are aware of their important public role and provide us with a platform to inform their viewers, listeners and readers.
- A year ago you talked about 5 billion leva of profitability – what is the real picture now?
- Here I would update the question, because 5 billion leva is already an older number. In August, the BADDPO published that for the last three and a half years the total profitability is 3.4 billion euros, and for the first half of 2026 alone it is 584 million euros. It is very important to note that this is not a profit for the companies, but a profitability distributed to the personal accounts of all insured people.
- Won't people start moving their money according to the market?
- This is a very important risk and here our role is to be absolutely clear: the pension subfund should not be changed according to the news of the last week. The fact that a person has the right to change their choice does not mean that it is wise to do so constantly. If the markets fall and a person switches from a bullish to a conservative fund out of fear, they may simply turn the temporary decline into a real realized loss. When the markets recover, they may get back in too late. This is the classic "sell low, buy high" mistake.