Main Characteristics of the Pеnsion Sуstem in Bulgaria

This study makes a critical analysis of the development of the pension system in Bulgaria. An historical overview of the development was made, with the emphasis on the main points of this historical analysis, such as structure, strengths and weaknesses of the implementation of specific activities. The focus of the study is on the pension insurance of servicemen in Bulgaria.


Issues of development of the capital pension funds are examined in detail by
Stanislav Dimitrov [1]. The activity of the capital pension funds is regulated by the legislation that came in effect in 1999. The pension system is a three-pillar one: the first pillar is based on the cost-covering principle; the second pillar -on the capital principle and compulsory participation, and the third pillar on the capital and voluntary participation.
The new model of the pension system in Bulgaria is determined by the trends in the economic development and the social insurance in the country over the past twenty years. The model allows the country to perform pension insurance based on two principles -cost-covering and capital-accumulating. Immediately after the Liberation, the Tarnovo Constitution of 1879, provided for the right of pension for civil servants: "Article 166 -Officials appointed to service by the Government are entitled to a pension, the base and amount of which to be determined by a special law". Subsequently, this right was extended by a special law [2]. In 1880 the Act on Disability was adopted which regulated the pensions of fighters and volunteers, and imposed the requirement of service as a condition for receiving disability pension, which is considered to be the beginning of the legislation in the field of the social insurance and assistance [3].
An interesting moment of the pension insurance from this period are the so called combatant pensions. The first Law on Improvement of the Situation of Combatants and Volunteers was adopted on June 3, 1880. This category included "not only the combatants injured in Turkish prisons and in times of war, but also all others who regardless of these reasons and after hostilities were injured and became unable to work". The law stipulated that "a combatant unable to work to be given annually from 100 to 300 francs support for life". In order to receive such support, combatants had to provide a medical certificate "which obviously shows that the disease, which the person has disables him to work and earn a living with his own labor" [4].
On 23.06.1886 the 4 -th Ordinary National Assembly adopted the Act on Disability Pensions of Military Persons. Under this law, military persons were divided into four categories: the first category comprised those who were unable to earn their living with own labor and needed help, the second category -those unable to earn their living with own labor, the third category -semi-able to earn their living with own labor, and a fourth category -able to earn their living with own labor, but with obvious difficulty. The law set specific amount of disability pensions for the respective rank and category of disability. Cash finances were raised in the following ways:  5% deduction on the monthly salary of servicemen;  3% one-time deductions on the pay gap at producing to a higher rank or higher remuneration;  From interest on capital and  From accidental revenues and donations.
All accrued cash finances were deposited in guaranteed state financial institutions.
Emerital pensions were granted according to military rank at which the latest installment was received. In case of death or when the servicemen had not become entitled to pension, but died in the war or during the performance of their duties, the pension was given to the family of the deceased. Granted pensions were terminated:  When retirees re-enter active service;  When the widowed re-marries;  When a the son or sons of the deceased become 21 years of age or enter civil service;  When the daughter or daughters of the deceased become 30 years of age if they have been married;  When the pensioner is missing;  When the pensioner is devoid of political, civil and economic rights;  Upon death and  On entry into monasticism.   Three or more orphans received ¾ of the amount of the calculated pension;  A widow with less than 3 children received 2/3 of the amount of the calculated pension;  Less than three orphans received 2/3 of the amount of the calculated pension;  Father and mother received 1/3 of the amount of the calculated pension;  Only father or mother received 1/5 of the amount of the calculated pension; The pension fund was formed by:  Share capital amounting to 750,000 levs, lump granted by the state;  The annual contributions of 5% of the salary of each officer, a military doctor, clerk and serviceman of the Military Department;  From bequests and gifts.
Issues related to the disability pension were regulated by this law, but finances were borne by the Treasury. The ones receiving disability pension were divided into three categories: the first category comprised those who were unable to earn their living and needed a servant, the second category -those unable to earn their living, the third category -semi-able to earn their living. The law determined the amount of the disability pensions for the respective rank and category of disability, whereas e.
g. sergeant major received disability pension -for the third category 300 levs, for the second category 600 levs, and for the third category 840 levs. The pension fund was formed by: initially granted by the state share capital; 5% deductions from salaries for rank and position of the servicemen; temporary cash receipts from the state, which were necessary to cover the largest amount which the cost can reach; interest on deposited funds and deductions from gifts and bequests.
The amount of the pension was 40% of the salary for rank and position, whereas for less than 15 years of service the pension was to be reduced by 3% for each year less.
With the disembodiment of the Emerital Fund in 1894 the supplementary pension insurance of servicemen through mutual assistance in the Principality of Bulgaria was terminated.
In her study of the pension insurance in Bulgaria before 1944, Iliana Ivanova notes that with the adoption of the Law on Public Insurance in 1924, that remained unchanged until 1948, the Law on the Pensions for Retirement from 1932, and the creation of the Institute for Social Insurance in 1941, the fund system for the social insurance in Bulgaria was formed. Significantly expanded was the base of the insured, increased were the revenues of the pension funds that wisely invested the accumulated in them finances [6].
In the first pension laws, the norms for retirement and the age limit for retirement were relatively low. This made it possible to retire young employees with less service, something that is bad for the pension funds and therefore subsequently laws were gradually amended by increasing the length of service and the age for obtaining the right to pension. At the beginning pension deductions were 3 percent to reach in 1943 12.5 percent.
Until the wars for national unification, the size of the pensions allowed for a better living of pensioned servicemen, given their small number and growing demographic potential of the country. After two national catastrophes that lead to the Treaty of Neuilly, began a long process of devaluation of the pensions for objective reasons, which was interrupted briefly during the 30s of the twentieth century and was resumed again during World War II.
Generally by 1944 in the conditions of a market economy, Bulgaria managed to lay the foundations of the social security system, which was close to similar systems in developed countries, especially in terms of legislation. It set clear and precise criteria for granting pensions, whereas of primary importance were the size and duration of paid insurance contributions. After the coup d'état of September 9 -th , was imposed a system of central planning. This inevitably had an impact on the pension insurance of servicemen, which also became highly centralized.
In 1948 a new Law on Public Insurance was adopted, replacing the current one from 1924, that replaced the fundamental principle that the right to pension arises from participation in insurance contributions in the fund rather than labor Legal aspects of the activity of the pension funds.
In the White Paper on adequate, safe and sustainable pensions in the EU [9] are enshrined questions about the problems in the pension systems and the agenda The main purpose of pension systems is to provide adequate retirement income and to allow the elderly people to enjoy decent living standards and economic independence, whereas the pensions automatically perform also a stabilizing function.
Although recent reforms of public pension systems were aimed at improving or maintaining protection from poverty, most of these reforms will lead to lower levels of replacement rates (pensions relative to previous earnings) in the future (Chart 2). Many of the competences and EU policy initiatives affect national pension systems and policies.
The challenge for pension policies is to introduce a system that is financially sustainable so that the main purpose of pension systems can be realized, namely, to provide adequate retirement incomes and to allow elderly people to enjoy a decent standard of life and economic independence.
In the Programme for adequate, safe and sustainable pensions the European Commission issued recommendations that will most likely affect Bulgarian servicemen, namely:  Restricting access to early retirement schemes and other ways for early exit from the labor market;  Support for the development of supplementary retirement savings to enhance retirement income.

Restricting access to early retirement
Pension reforms aimed at people to be detained for longer in the labor market should also focus on removing unjustified opportunities for early retirement, which can be applied to all employees or for specific professions.
In some Member States compulsory state pension system allows the persons with full pensionable service to retire before the standard retirement age (e. g.
Austria, Belgium and Luxembourg The crisis has exposed the vulnerability of the capital pension schemes in times of financial and economic crises. It also stressed the need to review the regulatory framework and scheme design to improve the security of private pension insurance. The EU has legislative competence in this area and have already economic efficiency and safety in many Member States. Therefore it would be beneficial to strengthen the European support for better insurance coverage for women and men and the dissemination of good practices, including in relation to the optimal targeting of tax incentives for the capital pension schemes. They can be encouraged by governments or social partners. Since in future people will have to rely more on complementary retirement savings, their safety and effectiveness will need to be optimized.
Studying the examined processes the following findings and conclusions can be made: 1. Pensions from capital funds will continue to increase their share in the total amount of the pensions at the expense of reducing the share of income from public schemes. Reasonable are the expectations the capital pensions to catch up with public pensions and the two together to form a 70-80% rate of income replacement.
2. There are several possible solutions for the implementation of early retirement of servicemen. As a first option -the retirement of the servicemen to remain in the current pension insurance. They shall continue to retire under the universal pension scheme with clearly defined legal forms, as it is now. The disadvantages are related to the fact that as members of the European Union, we continuously receive recommendations to limit early retirement and this will continue both for the servicemen and for the rest of the population.
Another option is to create capital pension funds for servicemen, which is in line with the predominant global experience. This pension fund can be realized as a military pension fund, in which certain contributions are made by the employer and the servicemen. Servicemen will be able to retire earlier by receiving pension from this fund and then enter into the general scheme of retirement.
3. From the nature of the capital pension funds we can derive their main advantages. The advantages of the capital pension funds and the shortcomings of the public cost-covering system lead to an increase in the share of the capital pensions in overall retirement incomes.