Bulgaria’s ad-hoc pensions parliamentary committee has recommended lower fees, improved investment and ownership disclosure and shored up resources for the pensions regulator.

The eight-member cross-party committee, whose report was adopted by Bulgaria’s National Assembly (parliament) on 14 May, was set up in February in the wake of the backlash following the government’s controversial changes to the Social Insurance Code at the end of 2014.

These changes included giving members of the universal and occupational pension funds one, irreversible choice of moving fully to the first pillar.

Over two months, the committee held 10 meetings, with hearings from Ivailo Kalfin, deputy prime minister for demographic and social policies and minister of labour and social policy, finance minister Vladislav Goranov, the Financial Supervision Commission (FSC), the Bulgarian Association of Supplementary Pension Security Companies (BASPSC) and the National Revenue Agency (NRA), the country’s tax and social security contribution collector.

The meetings were open to the public, media and stakeholders.

The committee recommended that pension returns, currently published annually, should be reported monthly.

In the current dispute between the FSC, the industry’s regulator, and BASPSC over yield-calculation methodology, the report did not side with either party but recommended the regulator and market participants (pension companies, asset management and investment firms) reach a consensus shortly.

The issue of beneficial owners and related parties has also been controversial and was highlighted by the European Commission (EC) in a recent report on Bulgaria.

While the Social Insurance Code restricts individual shareholders’ investment to a single pension company, and bars pension funds from investing in securities issued by the owner of the pension company, or companies related to the owner, the ownership structure is not always transparent.

As the EC noted: “The current legislation, while generally sound, has shortcomings in the area of related-party and connected exposures, which involve a significant risk for the profitability of the funds, their clients’ future pensions and, more broadly, the efficient allocation of resources in the economy.”

The committee acknowledged that the current law needs to be amended and proposed that its members draft a legislative initiative.

The committee’s proposal to reduce fees by some 40% echoes similar recommendations made by the FSC in 2012.

The report noted that fee income continued to rise, increasing by nearly 15% year on year in 2014.

It reasoned that, after 12 years of operations, the pension funds and companies were stable enough to weather the reduction, while pension fund members’ accounts, and eventual pensions, would increase.

Other proposals included improving transfers from the NRA to the pension funds, and strengthening the FSC’s supervisory capacity, including more human resources, training programmes, new IT systems and an electronic platform for the funds and other supervised entities to submit information.

Sofia Hristova, chief executive and chairman at Allianz Bulgaria Pension Company, told IPE that while she would have welcomed more specific and precise findings, the committee has helped the pensions industry highlight issues that have been stifled for many years.

“The public is already much more aware of the gist of pension reform discussions among the industry, legislator and supervisor,” she said.

The committee did not make recommendations concerning the recent changes to the funds’ mandatory status.

These are the subject of a number of proposed amendments made by the Finance Minister in late January, which have still to be debated by Parliament.

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