In Biblical times, people were punished with the loss of their common language and understanding because of their attempt to build a tower as tall as Heaven – the Tower of Babel. Today, people are encouraged to gather together on equal terms. However, equality requires roundtables so large there is no chance to hear one’s counterpart, let alone understand them. This is becoming the modern paradox of the Roundtable of Babel.

What is Bulgaria’s place at the EU roundtable of supplementary retirement provision? The Bulgarian local supplementary retirement vehicles include a mandatory and voluntary element. The mandatory are MUPFs (mandatory universal pension funds, for those born in 1960 onwards) and MOPFs (mandatory occupational pension funds), which cover the early retirement of those working in hazardous occupations.

The mandatory vehicles have the benefit of automatic affiliation (in case employees have not made their choice in due time), membership switching options, universal coverage and portability. The voluntary vehicles are the VPFs (voluntary pension funds) and the VPF-OPS (voluntary pension funds with occupational pension schemes). The VPF-OPS allow for the IORP Directive occupational provision.

According to the latest data of the Bulgarian Financial Supervision Commission (as at 30 September 2013), assets under management in the mandatory and voluntary funds are at €3.3bn, an increase of 18.45% compared with 30 Sep 2012. They have 4.2m members out of a total population of 7.4m. Almost 80% of the assets are managed in the MUPFs; MOPFs account for 9.77% and VPFs account for 10.15% of the total. The most recent vehicles – the VPF-OPS – have an insignificant share of 0.1% of the AUM.

How can one explain the striking lack of market interest in the typical occupational schemes in Bulgaria? Since the 1990s, supplementary pension funds in Bulgaria, as in other Central and Eastern European (CEE) countries, have developed as fully funded and portable, individual defined contribution (DC) vehicles, which are sometimes labelled non-European. Have individual DC schemes flourished as a result of some non-European, overseas infatuation characteristic of the CEE region in the 1990s?

Having lived in a totally controlled society with almost no risks, Bulgarians and other CEE citizens showed strong risk appetite, desire for job mobility and great interest in financial independence in the 1990s after the Communist regime collapsed. Eastern Europeans opted for an opportunity at retirement; Western Europeans have welcomed a retirement promise.

So supplementary pension schemes in Bulgaria have been individual in nature rather than employer-based since their re-establishment in 1994. This has proved wise in a period of economic restructuring and change of ownership of the enterprises. It protected members from unreasonable and unsustainable promises by changing employers during privatisation. And above all, it appealed to CEE citizens’ renewed trust in their individual financial independence.

UK pension experts sometimes explain the development of occupational schemes in the UK by the statement that their citizens do not trust their government but their employers. In view of the profound transformation from a totalitarian to a democratic society with deep economic restructuring and change of ownership of the major enterprises, Bulgarians cannot be blamed for their mistrust in both their government and employers.

A first warning bell sounded at the end of 2010. A national legal amendment required MOPFs to transfer certain assets to the National Social Security Institute. Those were the assets of the members who were expected to opt for early retirement within the next three years. The actual transfer of €55m took place in March 2011. The Bulgarian Constitutional Court Ruling of 31 May 2011 declared the said transfer unconstitutional. Individual accounts with MOPFs were reopened for new contributions from 18 June 2011. The contribution to the other supplementary mandatory vehicle (MUPFs) is scheduled to increase from the current 5% to 7%.

There was a further reminder – this time coming from outside Bulgaria. Misunderstandings about the allegedly improper transposition of the EU law regarding the occupational schemes sometimes become the reason for the admonition to Bulgaria to mind its step towards the common EU pensions market.

At its accession to the EU in 2007, Bulgaria fully transposed Directive 2003/41/EC providing for the necessary legal framework for IORP cross-border activities. The national law allows undertakings located within Bulgaria to sponsor IORPs authorised in other member states. It also allows IORPs authorised in Bulgaria to accept sponsorship by undertakings located within the territories of other member states.

Trying to convince Bulgarians to favour supplementary retirement solutions that are not consistent with the historically dependent pension fund members’ expectations will definitely add to the Table of Babel. The ongoing EU mapping of the various national systems should not turn (for the obvious financial reporting reasons) into a complete ‘mopping-up’ of diversity in national pension systems, which is at the heart of market innovation and competition. CEE citizens would rather opt for a revival of the forces of market competition, with mobile employees as a cross-border carrier of change and harmony in the EU.

A member of a Bulgarian supplementary retirement provision fund is not interested in the bipolar model of definition – DB or DC. What the member wants is a clear and unequivocal advance definition of both the benefit they are to obtain in the form of a secure pension amount, as well as a clear and unequivocal advance definition of the contribution required. Is it possible to have both variables defined in advance in compliance with the members’ individual preferences at the different stages of their lifecycle? The solution to this dilemma is key to the pension problem.

Facing the demographic, financial and economic challenges of the 21st century, the EU is set to make a giant step towards adequate, sustainable and safe pensions – a step that requires efforts commensurate with the ones made by our predecessors. And this time it is to be a common step forward.

To watch a video associated with this article, go to www.nixartspear.eu/mindyourstep

Svobodka Kostadinova is an author with an interest in the social aspects of new EU accession societies. Nickolai Slavchev is a pensions analyst.

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