EKIP– Expert Club for Economics and Politics A Different Opinion
On October 12, a roundtable was held with the participation of the state, private funds, and experts, which was supposed to decide what the rules should be for paying the first pensions from the second insurance pillar, which is due to be in 2021. Or at least that's what the Association of Private Pension Funds expected. In fact, the occasion was played out as a political trap, into which, as usual, some of the funds fell with both feet.
Instead of the main topic on the media pages being the great success of the government and the second pillar of insurance, after the roundtable we were flooded with a tsunami of obviously pre-prepared articles and comments attacking a serious weakness in the design (or more precisely, in the implementation) of private pensions. Namely, that a specific cohort of the first retirees under the new regime will have to receive lower pensions because of the so-called 20% reduction coefficient, which will reduce the amount they will receive from the first pillar. In the original design of the pension reform, this reduction was supposed to be more than compensated by the inclusion of the new additional money from the second pillar, but the reality today is that for some retirees in 2021, the additional amount will not even be enough to achieve parity with those who benefited from the old order.
The public attack on this completely reasonable line threw the private pension funds into a blind defense, which, however, turned out to be even more harmful than their traditional approach of passive silence. At the same round table, the official representative of the second pillar, Daniela Petkova, stated that there was an agreement “to avoid the topic”. In this way, it turned out that not only would pensions be lower, but that the pension funds, together with the state, had been hiding this through conspiracy. Moreover, it turned out that finally the Minister of Social Affairs would honestly admit the problem, and the funds are angry that their secret was revealed. Let's trace the steps of incompetence – you agree to remain silent and ignore the problem, they surprise you with a direct, prepared attack-trap on the same case and to top it off, you compromise yourself as the main culprit in the situation.
The knives for Bulgarians' savings in the second pillar are sharpened. The materials, part of the campaign against the second pillar, whether supported by facts or lies, call for a direct end to the "fraud" of the second pillar. And the opportunities for more such talk are ahead. For example, for those retiring in 2021, 2022, 2023, it is legally too late to transfer their account to the National Social Security Institute. This means that if a reduction coefficient of 20% or more is maintained, we will have pensioners who are harmed by the three-pillar model for years to come. Countless opportunities for new PR campaigns against private insurance. Moreover, even if full nationalization of the second pillar does not follow, we can only imagine how many thousands of Bulgarians will be scared and will donate their money to the state in order to avoid the uncertainty of their own pension funds.
Even with the knowledge that the state pension fund is in dire financial straits, its cost-covering model, combined with deteriorating demographics, opens up serious deficits that, depending on the business cycle, vary between 40-60%. It is not difficult to understand why, according to a sociological study by "Alpha Research", presented in the BNT program "Referendum", 65% of Bulgarians trust the National Social Security Fund, and only 25% trust private funds. Domestic private pension funds consistently fail to protect Bulgarians' savings from political encroachments. In addition to the latest blunder that gives rise to the current discussions, we can point to quite a few others from the recent past. A few quick examples.
The stalled pension reform - a direct cause of today's problem - the 20 percent reduction.
A reform that, if it had continued as planned towards a 7-10% personal contribution, would today provide much more serious amounts to retirees. The criminal passivity in 2014, when this author, together with his colleagues, had to organize a protest on a cold December night to stop the planned nationalization of the second pillar. The lying on one's back before the state in 2015, when the entire pension system was compromised with the possibility of a unilateral transfer from the second to the first pillar, but not vice versa. And even the so-called success of the last round table, the negotiation of the method of paying pensions, which also includes a lifelong pension, regardless of the amount of savings. Practical socialization of the second pillar and a new compromise of the principles of good pension insurance.
There is a clear feeling that the attitude of the managers of the funds in the mandatory private insurance towards our savings is no different from that of a temporary exploiter towards someone else's resource. Of a bureaucrat with access to someone else's money, managing to extract a serious rent from it in the form of management fees. On top of everything, either completely dependent on the political power, or easily manipulated by it.
Our 15 billion leva in the second pillar will continue to grow, becoming even more attractive for nationalization. The truly great danger for them is not in taxes, economic crises or the quality of investments, but in the fact that they can be taken away from us with a single political decision. Especially when private funds are managed with bureaucratic passivity and carelessness, instead of with a duty to protect the future for millions of working Bulgarians.
