KRIBB OPINION ON THE BILL TO AMEND THE SOCIAL SECURITY CODE

BEFORE

MR SIMEON DIANKOV

DEPUTY PRIME MINISTER

MINISTER OF FINANCE 

AND CHAIRMAN 

OF THE NATIONAL COUNCIL 

FOR TRIPARITE COOPERATION

REGARDING: Bill to amend and supplement the Social Code

                        insurance - Ex. No. 03-1314 of 7.07.2010 of the Ministry of Internal Affairs and Communications

DEAR MR DIANKOV,
The Confederation of Employers and Industrialists in Bulgaria considers that the current moment of crisis is extremely suitable for reviewing the strategy of the pension model and undertaking decisive changes to stabilize the system and restore confidence in it, rethinking the model and removing all privileges, injustices , imperfections inherited from different periods, compromises that have been made over time. In the project of the Social Security Act provided to us, there are some changes related to the refinement and improvement or introduction of new provisions, as well as a fundamental change in the philosophy of the pension model in the solidarity pillar. In this regard, our position will be focused precisely on the conceptual change of the pension model, taking into account the challenge faced by the pension system as a result of negative demographic growth, aging of the population, emigration of persons of working age, increase in unemployment, low percentage of replacement of the insurance income with a pension, mistrust and outflow from the system. KRIB expresses its principled support for the proposed changes to the Social Security Code related to:

· A change in the criteria for access to a pension by increasing the duration of the insurance service by 3 years, which will lead to an increase in the period of people's contribution to the insurance system. The measure is undoubtedly the result of considering the aging of the population, and the moment of its introduction depends entirely on the financial condition of the system and actuarial calculations;

· The proposed changes in the methods of calculating the amounts of pensions and the transformation of social security experience of different categories, and this experience will be converted only as three years of social security experience of the first category or four years of the second category are considered for five years of social security experience of the third category;

· Proposals related to incentives for delayed retirement - 3% for each year of insurance service after the specified age;

· Proposals related to the possibility to retire before having the necessary insurance experience;

· Introduction of a flexible mechanism for updating pensions, taking into account inflation, the growth of the gross domestic product and the insurance income;

· The proposed changes in accordance with the objectives set in the Europe 2020 strategy to increase employment, including through active aging and extending working life, giving employees the opportunity to work regardless of whether they have acquired the right to a pension or not;

· The proposed changes to remove the maximum amount of unemployment benefits;

· Proposals related to increasing and standardizing the period for calculating the benefits paid by DOO for employment, temporary incapacity, pregnancy and childbirth and unemployment;

and considers unacceptable the proposal related to:

· Introduction of amnesty on the interest payments of the persons who have obligations to the LLC until the end of the current year. Such a measure will not only burden the pension system from a financial point of view, but it predisposes to non-compliance with the legal norms and encouraging the incorrect debtors at the expense of the correct ones. If this proposal aims at greater collection and revenue in the DOO, then the amnesty period should perhaps be until the end of the year, and not the first half of 2011;

The proposals made for changes in CSR are partial and cover only the solidarity pillar of the pension model, with no information on the pension system as a whole. KRIB believes that the role of the second and third pillars should be strengthened in the new pension strategy. There, too, there is a need for reform, to change regulations and to change the investment restrictions on which private pension funds can manage their portfolios, so that ultimately the capital accumulated there is more flexible and can create greater time value so that the second and third pillars could logically replace to a greater extent income while people were active.

In addition, the pension strategy underestimates the role of the Silver Fund as a source of funds, as a capital element in the solidarity pillar and its possibilities and development of various mechanisms for additional financial resources.

 In this regard, the proposals of KRIB were made during previous discussions, some of which were not adopted and developed in the proposed bill, namely:

1.      Increasing the amount of the personal insurance contribution in the UPF, which will allow the formed additional pension to play a sensitive role in the total amount of the final pension. The insurance contribution in the amount in which it is determined is not sufficient to achieve such an amount of accumulation on the individual items of the insured persons in the UPF on the basis of which, upon retirement, these persons will receive a satisfactory additional pension, which will reach the replacement ratio of the order of the strategically set goal – 20%.

2. There is no connection between the life cycle of the persons insured in the second and third pillars and the investment of their funds. The need for a different investment approach to the funds of the insured persons and the provision of different alternatives for risk and profitability related to the life cycle of the insured persons is becoming more and more acute. Achieving a significant reduction in the risk of the funds of the insured persons who are of pre-retirement age, and vice versa – an increased risk of those entering the labor market. Creation of a more effective investment activity, meeting the interests of the insured persons, which will strengthen the competition between the pension companies and guarantee a minimum yield in the additional mandatory pension funds.

3.      Optimizing the price of the service in the mandatory supplementary pension insurance through the gradual reduction of the fees and deductions collected in favor of the companies, in parallel with the increase of the insurance contribution, with the aim of increasing the funds in the individual lots of the insured persons and increasing the replacement ratio.

4.      Input differentiated approach in determining the minimum insurance income for self-insured persons by separate groups of professions and introduction of a new approachwhen determining the minimum insurance income for registered agricultural producers and tobacco producers, to guarantee at least a minimum/average pension for length of service and age. The existing model places certain groups of insured persons in a more advantageous position compared to other insured persons.Overview of the professions included in the privileged groups of persons for those working in the first and second labor categories and for those enjoying early retirement rights under Art. 69 CSR and their reassessment.

5.      Unloading the system from all improper payments.From the "Pension" fund, only the pensions for labor activity should be paid in their actual amount, all other additional payments should be taken over by the relevant institutions on the basis of an income test.

· It is necessary to distinguish between occupational pensions and social pensions, with social payments being transferred to social support.

· Transfer to the NHIF of sickness benefits, supplementary payment for disability pensions for recognized length of service and medical examination bodies for working capacity, so that the control over the issuing of sick leave and decision-making on disability is carried out by the body that has the funds to pay for benefits.

6. Restoration of the fund principle of budgeting of the state social insurance, which would create an opportunity for the accumulation of funds in separate funds and the application of various mechanisms for investing and financing the shortfall in the system in the long term.

Sofia, July 19, 2010

With respect,

Eugene Ivanov

Ex. director