16.11.2010

We need to take urgent key measures to ensure greater effectiveness and fiscal sustainability of the pension system, said Deputy Minister of Finance Boryana Pencheva at the opening of the one-day working seminar on "Bulgaria: Pension Reform Options". The forum was held on the initiative of the Ministry of Finance with the participation of experts from the Ministry of Finance, National Social Security Institute, MLSP, FSC, NRA and representatives of trade unions and employers' organizations. Guest speaker at the forum was Emanuele Baldacci, head of the technical mission of the International Monetary Fund for the pension reform in Bulgaria, held on 13-25 October.

In her statement Deputy Minister Pencheva pointed out that the main purpose of the reform was to achieve a balance between the contribution of each insured Bulgarian citizen and the benefits of the pension system. "We must change the attitudes and increase public confidence in the pension system which should be a guarantor of citizens' rights that their participation in the labor market and their contribution will be taken into account," added Mrs. Pencheva. With the budgetary procedure and the approval of the State Budget Act by the National Assembly there is a general commitment of the Government and the Parliament to implement the reform which is part of the overall policy to ensure fiscal stability, said Deputy Minister Pencheva. She reminded the main directions of the pension system reforms, which are to improve the link between contributions and pensions as well as the performance of the second and third pillars of the pension system, while ensuring balanced diversification of pension contributions from the second pillar and encouraging participation of people in all three pension pillars.

Deputy Minister Pencheva drew a parallel with the situation in other EU Member States. "While exiting the crisis all countries apply tough reforms in such sectors as pension system, education, healthcare, accompanied by a reduction of government spending," said Boryana Pencheva. She cited the latest Eurostat data showing that the deficit of the 27 Member States was 6.8%, while in the Eurozone it was 6.3 %. Against this background, Bulgaria is well and despite the difficulties we have social dialogue and common understanding of what should be done to ensure stability, especially in view of the demographic trends in the country, pointed out the Deputy Minister of Finance.

Boryana Pencheva expressed special gratitude to the IMF staff in the person of Emanuele Baldacci, as well as to the management of the IMF Fiscal Affairs Department for the correct partner support and the high quality of the expertise provided in the definition of the reforms to ensure financial viability of the pension system in the country. "Bulgaria will continue its constructive dialogue with the IMF as a partner country, a country that will continue to rely on the advice, expert support and discussion with the IMF. We do not seek an agreement to guarantee our fiscal stability as we have taken all necessary steps and reforms, but I hope that our cooperation will continue ", said in conclusion Boryana Pencheva.

Emanuele Baldacci made a presentation on the key findings and analysis of the mission held a month ago, and pointed out that even countries in good macroeconomic condition like Bulgaria need to undertake reforms. As a particularly important measure in this direction the IMF recommends limiting the deficit in the pension system and supports the measures adopted by the Government for legislative changes related to:

• the conditions for pension entitlement;
• increasing the rate of contribution to the Pension Fund within the public pension system;
• gradually increasing the length of service and the retirement age;
• increasing the rate of contribution to Universal Pension Funds;
• changing the pension formula (towards achieving a closer link between contributions and benefits), the pension ceiling; broadening the range of insured persons and improving contributions' collection;
• limiting early retirement.

The assessment contained in the IMF report is that those measures and activities should be implemented and improved in the short, medium and long run.

The participants in the discussion supported the objectives of the Government to achieve adequate pensions and to gradually overcome the deficit in the budget of the public pension system. It was emphasized that a very important issue in pension policies' implementation is the restoration and enhancement of public confidence in the pension system, as well as the public disclosure and clarification of the benefits and effects of pension system participation.

You can find the Final Report  of the International Monetary Fund on the pension reform in Bulgaria on the website of the Ministry of Finance, "Documents" section.