EUROPEAN PAPERS ON THE NEW WELFARE

3. The Bulgarian Pension Model and the Global Financial Crisis

The world financial crisis, which erupted at the beginning of 2008, will inevitably have an impact on the functioning and development of the Bulgarian pension security system. At this stage it is exceptionally difficult for one to produce empirical data on the value dimensions of the contingent adverse ramifications having a direct or an indirect effect as well as having an immediate or delayed impact (though their expected trends can be outlined).

The adverse ramifications having a direct effect and an immediate manifestation are primarily affecting the parameters of the functioning of the Bulgarian pension model environment. A natural reaction of businesses under the circumstances, given the shortage of means, is the reduction and optimizing of costs, including those having a social purpose. This means an expected fall in employment and rise in unemployment with the ultimate effect of constraining resources for meeting public and personal needs, including the need for social security protection.

In the aftermath of the above, however, there is an indirect effect and initially delayed manifestation (some of which is already noticeable). This concerns the quality of the pension security system, most particularly with regard to the indicators of individuals’ aims and levels of payments provided by public, as well as by additional pension security.

On the face of it, the cost-covering public pension security seems to be comparatively sustainable in the face of the economic shockwaves originating from the world financial meltdown. However, it will have to deal with issues such as:

• Increasing the coefficient of dependence of the so-called pension number (an indicator presenting the number of pensioners provided for by an active member of society, crucial to the financial stability of the system);

• Shrinking of the mass amount of the security income resulting in the reduction of the system’s own earnings, all of this in a situation of constrained capacity for financial support on the part of the country;

• Preserving the “security” nature of the system in a situation in which there is an estimated aggravation of the problem of poverty among the elderly⁸.

The economic interpretation of capital-covering additional pension security predetermines its overwhelmingly high degree of dependence on the magnitude and intensity of the manifestation of the world financial crisis. The normal functioning and further development of the system are predetermined by its capacity for sustaining its attained level and further development, the preserving of, and subsequent increase in the number of persons and the sizes of security contributions, plus the attained accruals in a situation of constrained economic opportunities for the interested agents, both persons and firms.

4. Conclusion

The Bulgarian pension model in this form is at a stage of initial development and incessant improvement. We can assess positively and give credit to its concept-based organization and institutional regulation — preserving, within reasonable boundaries, the established state-organized public cost-covering pension security while reviving the traditions of the somewhat forgotten privately organized additional pension security in the form of the independent as opposed to the governing pension security companies’ pension funds. In this sense, the world financial crisis draws our attention to the contingent tremendous adverse ramifications of ‘copying’ managerial decisions incompatible with Bulgarian realities and creates a unique opportunity for testing, under real and extreme circumstances, the theoretically deduced relationships and interdependencies between the key form of pension security protection and the additional ones within the framework of the complex pension system, which, exceptionally, is hardly susceptible to radical reform.

Total pension security originates, develops and improves in the light of the employment and economic activity of individuals and must not be seen as a universal means of solving the majority of economic and social problems.

The public pension system, which has gone through many trials and has proven its reliability, and society at large can only benefit by rethinking the place, role and importance of the state within the framework of the multi-pillars model and by paying attention and effort to assessing the options for introducing a version of the so-called basic pension accommodated to the Bulgarian realities, but only as a component of the complete policy and strategy for containing poverty⁹. It is naïve to expect that the additional capital-covering pension security, despite the variety of the risk-exposure profiles of multi-fund investment portfolios, will succeed in putting right the defects of the labor market, the exceptionally high income differentiation¹⁰ and the constrained financial abilities of persons¹¹ and firms¹².

The outlined problem areas, without any pretence as to their exhaustiveness, cause reasonable unease, but viewed in the light of the further development of the Bulgarian pension security system they can be used as starters for its desired improvement and its turning into a key pillar of market economy and civil society — a peculiar catalyst for the quite necessary economic growth.

8 According to EUROSTAT data the portion of poor people out of the entire population of Bulgaria in 2006 was 14%, and the portion of poor people aged 65 and over against the population within the same age spread was 18% with numbers averaging the same as those in indicators for European Union countries — 16% and 19% respectively. According to experts, in the next decade a multiple increase is expected in the portion of poor persons aged 65 and over. See: Wolfgang Bucherl, Armut und Soziale Ausgrenzung in Europa: Fakten, Entwicklungen, Strategien, Prasentation beim 5. Europaaischen Dialogforum Cristlicher Arbeitnehmerorganisationen. Waldmunchen. 14.06.2008; Dieter Brauninger, Problem Altersarmut, Deutsche Bank Research, Aktuelle Themen 427/1. September 2008, S. 3.
9 As a member country of the European Union Bulgaria assumes the general commitment to undertake the necessary action required to guarantee that “elderly persons shall not be endangered by poverty and to this end they shall have a guaranteed standard of living relevant to the economic capacity of the respective country and commensurable with their individual contribution to the economic, social and cultural prosperity of society” See Paul Pochhacker, Privatisierung und Liberalisierung offentlicher Diensleistungen in der EU — 15: Pensionen, Osterreichische agaeselschaft fur Politikberatung und Politikentwicklung — OGGR, Wien, 2003, S. 5 u.a.
10 As per data of the NSI IN 2006 given a national gross occupational salary of 4,756 levs the gross annual salary of different categories of persons, depending on various features, were as follows: gender — 5,108 levs for men and 4,422 levs for women; economic activity — from 10,671 levs for financial mediation to 2,589 levs for hotels and restaurants; profession conducted and position occupied — from 10,768 for the group of President, legislature, high-ranking officials and managers to 2,576 levs for personnel employed for population services, trade, security and education; 10,778 levs for higher-education persons, Ph.D.s, to 3,407 levs for persons at the level of secondary or elementary education. See Monitoring of the structure of salaries 2006, National Statistical Institute, www.nsi.bg.Labour/Labour.htm .
11 In 2007 savings in the form of a deposit i.e., the amount of current incomes that was a postponed consumption, assuming options for participation in the additional pension security on average amounted to 107 levs. At the same time the incomes from property and savings (the estimated future earnings from additional pension security should also be viewed as such) were, respectively 30 and 127 levs representing about 4,7% of the total income per person. See Households’ Budgets’ during the Period 1999-2007. National Statistical Institute,http://www.nsi.bg/BudgetHome/BudgetHome.htm .
12 The portion of employers’ expenditures for additional voluntary security in the structure of labor costs in 2004 amounted to only 0,4%. See Monitoring of Labor Costs 2004. The structure of employers` expenditures regarding employees, employed in economic activities under labor or official relationships in 2004. National Statistical Institute, www.nsi.bg/Labor/Labor.htm .

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