Bulgarian Govt Claims No Nationalization of Pension Funds

Business » FINANCE | October 25, 2010, Monday // 20:03| Views: | Comments: 0
Bulgaria: Bulgarian Govt Claims No Nationalization of Pension Funds Labor Minister Mladenov (right) with Social Security Institute head Mitreva explained the government's intention with respect to the professional private funds. Photo by BGNES

Bulgaria's government has sought to assuage fears that its planned measures for pension reform amount to a nationalization of private retirement funds.

The government has suffered severe criticism on part of the business sector, the major bone of contention being its intention to transfer money from the early retirement accounts in private funds to a newly set-up state "early retirement fund."

Bulgaria's Labor Minister Totyu Mladenov and the head of the National Social Security Institute Hristina Mitreva presented Monday the final draft of the planned amendments to the Social Security Code. The changes are to be discussed by the Board of the Institute on Tuesday, and then by the National Council for Tripartite Cooperation, including the trade unions and the business association.

"The individual accounts in the professional retirement funds do not come from the personal installments of the employees. They were made by the employers who calculated these expenditures in the value of their products and services. Therefore, we have all contributed to those accounts," Mitreva said seeking to explain why the transfer of early retirement accounts from professional pensions funds to the National Social Security Institute does not amount to nationalization.

The National Social Security Institute is not going to affect the assets of the professional pension funds, nor will it withdraw money from the banks because nobody want an apocalypse in the state or loss of assets. We have consulted the Bulgarian National Bank and the representatives of foreign banks in Bulgaria. The holders and managing institutions of accounts could be changed. We are not going to affect the assets, or to reduce the profitability because these are long-term assets,” Mitreva explained.

After last week Prime Minister Borisov first announced the idea, a wave of opposition rose from the ranks of the business sector.

Mladenov and Mitreva said Bulgaria was the only country where the early retirement money are collected in private professional pension funds.

"We don't want to allow them to take advantage of the labor of the people toiling under hard conditions, and to give them a month pension of BGN 50 when they retire," said Labor Minister Mladenov.

He draw a comparison between the State Social Security (DOO) and private pension funds saying that for jobs categorized as having the hardest labor conditions, the private funds would pay BGN 72 per month vs. BGN 465 per month from the DOO (after 11 years of regular social security payments.)

For the jobs in the second category the figures are BGN 113 vs BGN 314 respectively.

He said a total of 102 241 persons in Bulgaria have jobs categorized as 1st or 2nd category.

Mladenov and Mitreva are afraid that because of the private funds, the persons with the hardest would get ridiculously small pensions in the period of their early retirement, i.e. before they reach the average universal retirement age for the country.

They further announced that the draft legislation provided for increasing the minimum required retirement age for 1st and 2nd category jobs by 6 months per year starting in 2015.

Thus, in the first category, the age will reach 55 for women, and 58 for men; in the second category – 60 for women and 62 for men.

Starting in 2015, the government will increase by 4 months per year (until 2024), the minimum number of years served required for retirement making it 37 years for women, and 40 years for men.

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Tags: retirement reform, retirement system, retirement funds, National Social Security Institute, Labor Minister, Totyu Mladenov, Hristina Mitreva
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