Bulgaria’s pension system is facing deep-rooted problems that go far beyond the question of eurozone accession, according to former Minister of Social Affairs Hristina Hristova. Speaking ahead of the “Changes in the Pension Model - Bulgaria” conference in Sofia, she told Bulgarian National Radio (BNR) that the system is running a deficit of 50%, driven by years of politically motivated recalculations that were disconnected from actual insurance contributions.

Hristova acknowledged that the eventual adoption of the euro could bring some economic benefits, such as easing currency conversion costs and stimulating wage and pension growth. But she stressed that, unless reforms are introduced, the current pension legislation will remain in force, with all its existing flaws.

She believes a number of difficult but necessary questions must be put on the table. First, how to increase revenue for the system. Second, how to reduce spending on items labeled as pensions but that actually fall under the remit of social assistance. These payments, she argued, should be shifted to the welfare system to support elderly people in need who lack family or other support. Hristova also questioned whether the so-called “Swiss rule” - the formula for annual pension updates - is the right mechanism to continue using.

The former minister called for the pension system to be cleaned up from entitlements not linked to work activity. She estimated that around 60,000 to 70,000 pensioners are receiving such non-contributory payments, which distort the real picture of the system’s health.

One of the thorniest issues, according to Hristova, is the retirement age. She admitted it is not the right moment to raise it. Equally complex, she noted, is the matter of increasing social security contributions. Any decision in that direction would need to be introduced gradually and with a long-term horizon, she said.

This is a sensitive issue, she explained, because raising contributions would reduce workers' take-home pay - employees currently cover 40% of the contribution - while increasing labor costs for employers, who pay the remaining 60%. Such a move could impact prices, job creation, and business competitiveness.

Hristova underlined that all potential reforms come with serious trade-offs, and there are no easy fixes. However, she also pointed to the importance of the supplementary pension system - the so-called second pillar. Though it has yet to fully realize its purpose, she reminded that contributions made to it are protected and cannot be lost. With time, and depending on investment performance, it can provide valuable additional income for retirees.

Source: BNR interview