The Financial Supervision Commission /FSC/ has presented to the parliamentary committee on budget and finances partial data for violations in the work of pension funds, offering legislative changes. It has been made clear that an inspection is going on at all the 9 acting retirement security companies. The check was occasioned by signals about some of these companies manipulating assets, in order to push up the profitability of the funds they manage at the end of the month. In the beginning of each month the return of those funds declines significantly on the end of the previous one and the change cannot be explained with the market.

The report of FSC Deputy Chair Angel Djalazov has resumed the already discussed proposals for legislative changes. They are due to the necessity of the legislative frame’s improvement in compliance with the market’s development, but haven’t been completed yet as a legislative initiative. A reduction by up to 40 percent is being planned for the management fee that the funds receive from the respective retirement security company.

According to Chair of the Bulgarian Association of Supplementary Pension Security Companies (BASPSC) Nikola Abadjiev the branch agrees with such a decrease, but only if it is part of a package of changes within the Social Security Code, related to the retirement funds’ profitability:

“This means the creation of new safeguard mechanisms, or the so-called guarantee funds /which should replace the now acting protective mechanism for minimum profitability – editor’s note/, the implementation of multifunds that provide an opportunity to citizens to opt for the way their money will be managed, also the creation of legislative tools for the payment of the first pensions from the Universal Retirement Fund in 2023.”

“In the course of more than 10 years the retirement funds themselves have been losing money despite these fees, but the insured persons have received their profitability without being affected by the financial loss. I would like to underline that the result from the investments is allocated to the accounts of the insured people. The retirement security companies receive nothing. Those companies are separate from the retirement funds and get paid for their management – 1 percent of an investment management fee and 5 percent of an administrative installment per each security one.”

Despite the accusations that retirement companies are not reliable and that it is better for the insured people to have a choice to transfer their money to the National Social Security Institute, no serious violations in the sector have been registered FSC data shows. Only 21 penal rulings have entered into force over the past 4 years.

Angel Djalazov comments that: “The actual profitability of retirement funds in the period July 2004 – December 2014 was minus 0.7 percent and minus 0.16 percent on an annual basis”. The expert later explained that the evaluation method on the actual profitability was outdated and a new one was to be adopted.

Nikola Abadjiev argues on the data, provided by the FSC:

“Different numbers appear and are offered across the public space. Some of those are determined within the period 2004 – end-2012, others include 2010 – 2014 etc. We cannot agree with these calculations and we think that the real profitability of retirement funds was positive over the entire 2002 – 2014 period. The actual profitability with the universal pension funds is plus 0.46 percent on an annual basis, while the average one – 5.56 percent for the whole of the 2002 – 2014 period.”

It is important to be pointed out that the profitability numbers cited provide resumed information on the branch’s overall state, but are not applicable to the individual funds or citizens’ lots, as not all the funds used to function through the time frame in question and individual charges depend on the term that the person has been insured in and the size of the installments.

English version: Zhivko Stanchev