Bulgaria’s Pension Reform Responding to the Needs of Workers for the 21 st Century

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 Figures Source: US Bureau of Census Some Figures Source: US Bureau of Census Total population (in thousands) , ,515 Life expectancy (years) Total fertility rate (child born per woman) Age dependency ration (percent) % %international data base

Goals of the Bulgarian Reform Adequate income for retirees Fiscally sound and sustainable system Transparency

MAJOR PROJECT ACCOMPLISHMENTS 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: 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 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: 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 LEARNED Divided in three categories: Design of the Reform Institutional Capacity Building Public Education

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

Thank you! Rayna Dimitrova, Senior Advisor USAID/Sofia