Bulgaria’s Pension ReformBulgaria’s Pension Reform

Responding to the Needs of Responding to the Needs of

Workers for the 21Workers for the 21stst Century Century

Why Reform the Pension System?Why Reform the Pension System?

• Previous PAYGO system suffered from declining wage tax compliance• Explosive numbers of retirees, including liberal

early retirement schemes• Economic downturn resulting from transition to

free market economy• Indexation of benefits under rapid inflationary

period added to financial strain

Some FiguresSome FiguresSSource: US Bureau of Censusource: US Bureau of Census

Total population (in thousands)

1998 8,240 2020 7,515

Life expectancy (years)

1998 71.962020 77.58

Total fertility rate (child born per woman)

1998 1.142020 1.42

Age dependency ration (percent)

1998 35%

2020 47% international data base

Goals of the Bulgarian ReformGoals of the Bulgarian Reform

• Adequate income for retirees

• Fiscally sound and sustainable system

• Transparency

MAJOR PROJECT MAJOR PROJECT ACCOMPLISHMENTSACCOMPLISHMENTS

• Direct project impact from the conception of the reform policy until now

• New private pension schemes in place with individual choice and market participation

• Well regulated and supervised private pension

• Accumulated pension savings in Pillars 2 and 3

Phase I: DesignPhase I: Design

• Pension Reform Working Group

• Study of pension systems in other parts of the world

• The idea of a multi-pillar pension system emerged

• Passage and promotion of pension reform legislative package

Phase two: Implementation Phase two: Implementation

• Pension regulatory agency established• Recruitment and training of regulatory staff • Regulations and procedures for licensing the new

pension insurance companies• Development of an integrated collections system for

Pillar 1 and 2• Training of pension fund managers• Institutional capacity building: Association of Pension

Funds• Actuarial analysis and training of local professionals. • A large-scale public information campaign on pension

reform

Phase III: ConsolidationPhase III: Consolidation

• Guidance on specific issues and topics as they emerged

• Centralized collection of contributions• Enforcing compliance• Training: portfolio management; internal

auditing; International Standards of Auditing

LESSONS LEARNEDLESSONS LEARNED

Divided in three categories:

• Design of the Reform

• Institutional Capacity Building

• Public Education

Design of the ReformDesign of the Reform

• A Broad Based Pension Reform Working Group is Essential

• Include Accountants, Actuaries and IT Specialists in the Policy Design Team

• All Stakeholders Should Have a Voice

Capacity BuildingCapacity Building

• Develop a Commitment to Training and Skills Building

• Promote Agency Cooperation

• Develop Different Supervisory Strategies and Investment Regimes for Pillar 2 and Pillar 3

Public EducationPublic Education

• Flexible, Varied, Creative, and Extremely Resourceful

• Phases 1 and 2: Targeted at key policy makers

• Phase 3: Broad education effort to help system participants understand the new pension system and the Pillar 2 options

Last but not leastLast but not least

• Promote Strong Donor Cooperation• Maximize the Use of Limited Resources• Focus on Results

Thank you!Thank you!

Rayna Dimitrova, Senior Advisor

USAID/Sofia