EKIP– Expert Club for Economics and Politics A Different Opinion
Position*
To: Bulgarian Libertarian Society
Regarding:The creation of common technical pools in private insurance funds and the elimination of individual accounts during the payment period and the right of inheritance for second pensions according to the draft Act amending and supplementing the Social Security CodepublishedfromMinistry of Financeof the Republic of Bulgaria on 22.04.2016
On 22.04.2016, the Ministry of Finance published a bill amending the Social Security Code, which proposes the introduction of a number of reforms in the second pillar and the third pillar of pension insurance in Bulgaria. The most radical of these reforms is the idea of creating so-called common "technical pools", from which pensions would be paid to all clients of each private pension insurance company. The bill provides for the elimination of individual pension accounts during the payment period and the infusion of the financial resources accumulated in them into a common pool, one for each pension company, from which pensions would be paid to all clients of the company in question. According to the bill, such a reform also means the loss of inheritance under the second pension, i.e. if a client of a private insurance company dies before the full amount of his account is paid, the remainder will not be inherited by his legal heirs, but will remain in the common technical pool of the company in question. The above-mentioned amendments have been made to Art. 121, Art. 131, Art. 192, Art. 213, Art. 243 and Art. 246 of the Social Security Code. As a result of these amendments, the right to inherit pensions may be retained only on any surpluses accumulated in individual accounts beyond the basic amount necessary for the payment of the guaranteed lifetime pension (the changes in the rights of the heirs are set out in Art. 245).
The reasons for this reform, as stated by the Ministry of Finance, are that this restructuring of individual accounts into common pools is aimed at sharing the risk of pension survival and covering the deficits that have arisen in the second pillar of pension insurance.
We, from the Bulgarian Libertarian Society, do not approve of the introduction of such changes in the second pillar of pension insurance in the Republic of Bulgaria. Our opinion is that the introduction of the so-called "technical pools" and the loss of individual accounts during the period of pension payment is an extremely counterproductive reform that undermines the foundation of private pension insurance. Namely, such a reform practically restructures private insurance on a model very close to that of the state one. The loss of the right of inheritance and the limitation of the right of ownership of the clients of private insurance funds over their savings deposited in their individual accounts would lead to the loss of one of the most distinctive characteristics of the second pillar of pension insurance.
The whole idea of having a second, private pillar of pension insurance is for it to be an alternative and complement to the first, not just a half-copy of it.
The first insurance pillar provides citizens with guaranteed and strictly fixed lifelong pensions, but without individual accounts, without property rights and, accordingly, without the right to inherit the deposited savings and the corresponding pensions. The second pillar, on the other hand, performs the function of complementing the first, through individual accounts, which guarantee the right of ownership of each citizen over the deposited savings and, accordingly, the right to inheritance. If the reform proposed by the Ministry of Finance is adopted, private pension funds will in practice have to limit the property rights of their clients over their savings. Thus, in practice, these funds will be transformed into a half-hearted version of the National Social Security Institute, because it is precisely this right of ownership and free disposal of savings, especially during the payout period, that are the most distinctive characteristic of private insurance compared to state insurance. It is for these reasons that the proposed reform sets a dangerous precedent and may even become the first step towards the complete nationalization of savings in private funds.
As for the deficits in the second pillar, which according to the Ministry of Finance must be covered and therefore such a reform is necessary, they actually exist only and solely because of unnecessary regulations imposed on private insurance funds by the state. The Social Security Code includes requirements for minimum profitability on each individual account in each private fund. It is precisely because of the inability of the funds to fully cover these requirements that the "deficits" in question appear, which the Ministry of Finance subsequently wants to eliminate by introducing common "technical pools". However, these requirements are absolutely unnecessary and in fact impossible to implement in every case.
Each private pension fund uses the savings deposited in it to carry out investment activities, through which it tries to provide long-term returns on the individual accounts of its clients. This investment activity, like any other, carries with it a certain investment risk and this risk can never be completely eliminated. The investment activity that each private fund undertakes may or may not provide a return on its clients' savings that is high enough to cover the payment of a full lifelong pension. In short, a client of a private pension fund cannot have 100% certainty that the return on his savings will be high enough to fully cover his retirement needs. In the real world, no investment brings a guaranteed and risk-free fixed level of return and savings deposited in a private pension fund are no exception.
In this line of thought, it should be abundantly clear that the requirements for minimum profitability on individual accounts in private pension funds, as set out in the Social Security Code, are absolutely inadequate. Due to the very nature of the investment activity that private insurance funds engage in, these requirements cannot be fully met by every fund at any one time and therefore such type of “deficits” will almost always be found in at least some of the pension companies. That is why the requirements for “minimum profitability” are absolutely unnecessary and contradict the very nature of private insurance – it cannot guarantee a 100% secure and fixed return, in theory this is actually a function of the state. What private insurance should guarantee is the property right of pension fund clients over their savings, both in the accumulation period and in the payout period. This is the most important function of the second pension pillar and it is this that must be most strictly protected.
In conclusion, we at the Bulgarian Libertarian Society believe that the creation of common technical pools in private pension funds and the elimination of individual accounts and the right to inherit pensions during the payment period, proposed in the draft amendment to the Social Security Code, is:
1) An extremely counterproductive reform that would undermine the distinctive characteristics of mandatory private insurance in Bulgaria and turn it into a semblance of state insurance.
2) An unnecessary reform - the deficits it aims to cover are actually a "problem" only if we believe that private pension insurance should function in the same way as public pension insurance and provide the same security and fixed returns.
As an alternative to this reform, the Bulgarian Libertarian Society proposes that the following amendment be made to the Social Security Code:the minimum yield requirements on individual accounts should be completely eliminated.
In this way, the contradictions in the second pillar of pension insurance in Bulgaria would be completely eliminated and such a reform would introduce the necessary balance between the conditions offered by the mandatory state and private insurance. The second pillar should be a full complement and alternative to the first, and not just its half-hearted copy. While the first pillar guarantees the payment of fixed and lifelong pensions, but without individual accounts and, accordingly, without the right of ownership and inheritance of individual savings, the second pillar should guarantee precisely the right of ownership and inheritance, through individual accounts, but at the same time without guarantees for the payment of fixed lifelong pensions, due to the constantly existing investment risk.
In reality, there is no way that one pillar can guarantee both the payment of fixed lifelong pensions and the full ownership of the individual savings of each insured citizen. That is why a system in which one pillar guarantees one and the second the other is the best and that is what we should strive for. This means additional differentiation, not unification, of the structure and functioning of the first two pillars of pension insurance in our country.
16.05.2016
Board of the Bulgarian Libertarian Society
* The text is of the official statement submitted by the Bulgarian National Defense Agency to the Council of Ministers. Entry number: 92-00-152 / 19.05.2016.
Lyubomir Hristov, Chairman of the Institute of Certified Financial Consultants, explained well about pension funds in our country that two pensions are less than one.
, and I have explained starting from afar with an article on Bulgaria On Air THE INFLIGHT MAGAZINE - https://www.facebook.com/atanas.shalapatov/posts/1752811994997027
What needs to be realized now is the systemic crisis that will cause funded pension systems to fail.
I also study the economic theories of Silvio Gesell because the most just economic and financial system must be created according to what is written in the New Testament: "8. And Zacchaeus stood and said to the Lord, 'Behold, half of my goods, Lord, I give to the poor...''/Luke 19:8/
that is, "half of one's property" is 50% taxes and not a 10% flat tax (tithe from the Old Testament) and family taxation is mandatory, and I don't like this idea of an unconditional basic income, and I won't explain the details now, but everything is in line with what St. Paul said: "he who does not want to work should not eat," that is, unemployment should be kept to 2-3% with socially useful activities and labor rationing.
For the pension system, the principle is the same, i.e. everyone has a personal account in the National Social Insurance Fund and if they die before retirement, 50% is inherited, and after retirement, up to 5 years, if they die, there may be some inheritance again, etc. in healthcare, 100% social solidarity is mandatory, like in England, as before 1989. in our country, because this is charity, part of the Christian virtues (obligations), and theft through budget spending is a separate topic - I am talking about principles, and with 50% taxes, love for God and neighbors is not exhausted, that is, most things are covered, but there is more.
Love for God and neighbors must be conscious, voluntary, and some things can be organized into systems and states, but since some do not understand or are slow to learn, they must be explained that redistribution, even from an economic point of view, is empirically proven useful, and if necessary, referendums on the basic policies of the state, explaining that social policies are charity, part of Christianity, not communism - https://www.24chasa.bg/Article/4179372
The Bible says, "Do good and you will be rewarded at the resurrection of the dead." That is, let's give 50% of our income to keep the wheel of the economy turning, and we will finally see at the Last Judgment.
50% taxes do not mean that money will just be given away like that, cash for social assistance, etc. like the stupid basic minimum income - in short, taxes will serve to keep unemployment at 3% and I can keep it for decades to come, that is, Keynes said it in 1930 and recently the UN economic department said it about reducing working hours, but this is for the end
Who, how and why sells neoliberalism in Bulgarian universities (Nikola Petkanov) - http://www.lifeaftercapitalism.info/analyses/477-neoliberalizum-bulgarski-universiteti
What is wrong with people preaching neoliberalism when the 2008 crisis proved its complete failure?
Neoliberalism, especially in financial capitalism, is a crime against humanity, and for industrial capitalism it is a little more special, but now planning is inevitable due to depletion of energy sources, global warming and the systemic crisis, and because 50% of food is thrown away.