PENSION FUNDS ALMOST UNAFFECTED BY CRISIS

Capital market recovery, rise in unemployment expected in 2010

Despite the crisis, the past year was good for private pension funds. Most of them returned 7 to 10% to investors, compared with a negative return in 2008. ING voluntary pension fund's return topped 9.5%, the rate achieved by ING's other two funds was between 7.5 and 8.5% on an annual basis, ING Pension Insurance CEO Nikolay Stoykov told Pari daily in an interview. The effect of the downturn on companies in the sector in Bulgaria was limited and their recovery was much quicker than in the USA and Europe.

Problems

The sector's most immediate problem at present is related to the deficit of the state social security fund, which is the first pillar of the pension system. One of the main reasons for the gap is the demographic structure: low birth rates, ageing population, emigration of young people. The role of multifunds is important. Apart from the first pillar, they also offer the other two pillars, supplementary mandatory and supplementary voluntary pension insurances. They provide better fund management depending on the personal needs and preferred risk profile, Stoykov added.

Balance

The balance among the three pillars depends on the goals of the pension reform. All discussions until now have led to a consensus on two main principles. The first is the 70-percent replacement rate. It has been accepted that 70% of the last wage will guarantee the same living standards after retirement. The second is the long-term balance of the first pillar. Any changes in the pension system should try to meet those two goals.

Opinion

Different opinions have been voiced concerning the retirement age. In my opinion the best scheme is defining a retirement age range and allowing people to choose for themselves, Stoykov pointed out. People are different, their state of health is different and the jobs they do require different efforts. That is why people have to decide whether to retire earlier and get a reduced pension or work longer and receive bonuses over their pension.

Expectations

The main factors that will continue influencing the activity of pension funds are capital market performance and income levels. Some 20% of ING's assets are invested in stocks. I believe the capital market will continue recovering, though not so quickly, Stoykov forecast. Incomes, however are unlikely to increase. Moreover, unemployment will probably peak in the first or second quarter of 2010 and that will harness Bulgaria's economic development.