Allianz Bulgaria - Pension Insurance Company JSC - Sofia

Multifunds are the most significant social security reform in a quarter of a century With the latest changes to the Social Security Code (SSC), the so-called multi-funds were introduced, which announced the most significant change in the three-pillar pension model since its introduction in 2000, with which private pension companies are expected to manage to improve the profitability of managing nearly 16 billion euros. However, there is no hope for a fundamental improvement, since this is only a partial repair, and some of the major gaps in the pension system remain. The first pillar of the pension system is administered by the National Social Security Institute and is pay-as-you-go, which means that at any given moment the proceeds come from the workers' insurance contributions, which are used to pay the pensioners. This kind of intergenerational contract means that people of active working age support the pensioners in exchange for a promise that when they themselves get older, future workers will do the same. The problem is that the system is chronically running at a deficit. Income from social security contributions is less than pension expenditure, with the ratio being only around 44% in recent years. The difference is financed by a transfer from the state budget, which in figures for 2025 is measured at over 12 billion leva, or nearly 6.3 billion euros. At the end of 2025, insured persons are nearly 2.94 million people, and pensioners are 2.07 million people, which makes a dependency ratio of around 70%. The combination of a shrinking and aging population means that fewer and fewer workers will have to support more and more pensioners, so the ratio will deteriorate to levels of around 80% and providing decent pensions will be increasingly difficult. Currently, the so-called replacement ratio (average pension to average social security income) in the country is around 55%, and even in recent years it has risen slightly due to the anticipatory and populist increase in pensions. According to the actuarial estimates of the National Social Insurance Institute, however, in the long term the ratio will fall to around 43-44%. The private second and third pillars of the pension system also have their own long-standing problems, which are rooted in the underdeveloped local capital market. With its low liquidity and companies that are not representative of the Bulgarian economy, it does not provide sufficient quality investment opportunities. This is not necessarily so much a problem for the insured persons, as the managers of the pension companies can easily invest their money abroad. Rather, it is a wasted potential for the Bulgarian economy to benefit from the pension savings of citizens. The most significant drawback that can directly harm clients remains investments in related parties. As a number, six out of ten licensed pension companies are partly owned, part of groups with businesses in various areas. And several of them have been directing a significant part of the investments of the funds they manage to related companies for years, despite the existing legal restrictions on this. However, these protections are widely circumvented through various techniques. Often, either the pension company itself is formally unaffiliated with the economic group to which it actually belongs, or a multitude of seemingly unrelated companies are created that list shares and/or bonds on the stock exchange solely for the purpose of being subscribed by pension funds. Another approach used to circumvent CSR is to use an intermediary (the pension fund invests in an unrelated mutual fund, which in turn has an agreement to invest the money in companies from the group). Cross-participations and the exchange of packages are often resorted to, through which pension companies also formally reduce their exposure to a group. In early 2015, the topic was also raised in a signal to the FSC by four pension companies controlled by international groups - "Doverie", "Allianz", "DSK-Rodina" and ING (today UBB). There, in addition to investments in related parties by their competitors with local ownership ("CCB-Sila", "Saglasie", "Badeshte" and "Toplina"), the question was also raised about their use for manipulating profitability. Neither then nor subsequently did the FSC find ways and will to stop these practices.