If Society Prospers, It Should Be Felt By Pensioners

There is no pension scheme in the world, public or private, that is isolated from the problem of population aging

Ivaylo Ivanov:

If Society Prospers, It Should Be Felt By Pensioners

Снимка: EconomyMagazine/Krassimir Svrakov

348 ~ 6 мин. четене

Ivaylo Ivanov was born on 21st February 1967 in Teteven. He is a graduate in Economics from Dimitar A. Tsenov Academy of Economics - Svishtov, he holds a master’s degree in Finance and Credit and a master’s degree in Law from Neofit Rilski South-West University - Blagoevgrad. From June 2016 to September 2017, he was Deputy Minister of Labour and Social Policy, and was responsible for the policies for unemployment protection, promotion of employment, labour market, labour migration and the free movement of workers, labour rights and social security. Prior to that, he had 13 years of experience in the management of the Agency for Social Assistance. Until 2009, he was its Deputy Executive Director, and from 2009 to 2016 - its Executive Director. He has many years of professional experience in the insurance sector. On 19.09.2017, he was elected by the National Assembly as Governor of the National Social Security Institute (NSSI).

Mr. Ivanov, this year the NSSI has a budget of more than BGN 11 billion, and the costs for almost all social payments were increased. What will be paid throughout the year for pensions, maternity, unemployment and sickness benefits?

The National Social Security Institute is entrusted with the management responsibilities for the state social security, and, in fact, the little more than BGN 11 billion constitute the budget of the separate security funds. Nearly 85% of the planned costs for 2018, or a little over BGN 9.4 billion, will be spent for the pensions of about 2,160,000 pensioners. The share of pension costs from the gross domestic product will again be around 9%, and in 2018, this means that the increase in pension costs is in line with the pace at which the Bulgarian economy is growing.

The increased costs - if I may use this expression - are not a matter of an administrative decision. What influences the dynamics of the pension costs and other social security benefits are mostly the objective economic indicators, one of them being the average income. Only for 2017, it has increased by nearly 6.7%. This is not a surprise because in the conditions of economic growth, consumption growth and low unemployment, it is expected for the salaries and income from economic activity to grow. The higher average insurable earnings define the higher amount of the new pensions. In a solidarity-based social security, it is important for pensioners to participate in the increase in social prosperity. The aim is to preserve their purchasing power, but also not to lag behind with regard to the income of the economically active population. That is why in 2018 all pensions, granted until the end of 2017, will be recalculated from the middle of the year for a year of work from 1,169 compared to 1,126 for the previous year, which is an increase of 3.8%. The minimum retirement pension will also grow from 1st July from BGN 200 to 207.60.

Nearly BGN 396 million have been set out in the state social security budget for unemployment benefits in 2018. From the beginning of the year, the minimum daily benefit increased from BGN 7.20 to 9.  It is expected also for the average amount of benefits to be higher due to the increase in the income of the insured persons. The number of the people who will receive benefits will be lower, due to the achieved record low levels of unemployment. For December 2017, the number of unemployed people registered in the Labour Office was nearly 29,000 less than for December 2016, and all forecasts suggest that this trend will continue.

For other short-term benefits, a little over BGN 1 million have been allocated. More than half of this amount will be used to support policies for increasing birth rates and promotion of combining personal and family life. These funds are intended for benefits for pregnancy and birth, bringing up a small child, benefits for adoption of a child between the ages of 2 and 5, vocational readjustment due to pregnancy and breastfeeding, attendance of sick family member. Here, it is worth recalling that from 2018 the monthly amount of pecuniary compensation for bringing up a child of up to 2 years of age was increased from BGN 340 to 380.

Although with less nominal share in the total cost of the state social security, the cash allowances for preventive care and rehabilitation are an important instrument for improving the health of employees, and therefore, they have a significant social effect. For 2018, a little more than BGN 20 million have been set aside for insured persons  at the discretion of their treating physician. For a maximum of 10 days per year, up to 4 main diagnostic and therapeutic procedures, overnights and partial dietary support are covered.

For years, the Pension Fund has been running deficit. How can this be overcome except with direct subsidies? Is there a need for an increase of contributions, or rather a complete change in the insurance model?

The effect of the reform in the pension system of 2015 resulted in an obvious improvement of the financial position of the state social security funds. That is why it must be consistently implemented, which will ensure predictability on the rights of individuals and the stability of the system in the medium term.

The amount of the contribution to the Pension Fund was increased with 1% in 2017, as well as at the beginning of 2018, and rose to 19.8% for the people born by the end of 1959, and 14.8% for the people born after that. The gradual increase of the length of service and retirement age also leads to the gradual reduction in pension costs. The retirement age for men and women will increase annually until it reaches 65 years for both sexes by 2037 for the third-largest category of labour. The retirement length of service also increases by 2 months annually until it reaches 40 years for men, and 37 years for women by 2027. A measure in this direction was also the introduction of retirement age for Defence and Security officers. As a result of all these measures, the transfer of money from the state budget for financing the costs of the state social security will decrease, but the long-term prognosis for the time from 2017 to 2037 shows that the system will run deficit in this period. In the next decades, the shortage of funds will remain sustainable - under 4% of the gross domestic product. In 2018, a little less than BGN 4.2 billion have been allocated for covering the shortage, and the greater part of this money will be for the needs of pension funds.

It turns out that a deficit can never be overcome?

Because of the implementation of the adopted measures for improvement of the pension system, the state social security balance is expected to improve for the period until 2025, when the deficit will reach its lowest level. After 2025, it is expected to increase and to reach higher levels at the end of the forecast period. After 2040, the balance of state social security is expected to deteriorate, mainly due to negative demographic trends. There is no pension scheme in the world, public or private, that is isolated from the problem of population aging.

Payment of sickness benefits is a large item from the budget. Are the amounts paid under this item decreasing, and is it necessary to take additional measures to address the so-called fake medical certificates?

The number of medical certificates in recent years is high, for 2016 it was 3,096,272, and for 2017 - 3,127,154, which is an increase of about 1%.  The amount paid for temporary incapacity due to a general sickness for 2017 is BGN 508.8 million compared to BGN 454.1 million for 2016, which is an increase of 12%.  The objective factor for the increase is hardly the unlawfully issued medical certificates, because the described increase has an explanation in factors, such as a higher number of insured persons - 1.7% more compared to 2016, as well as the average monthly amount of the insurance income by 6.7%, as I already mentioned. This does not mean that we neglect control - inspections are carried out concerning certain medical establishments where a significant number of medical certificates have been issued. The duration of the temporary incapacity for work is also monitored - the period for which medical certificates are issued for certain diseases. After these inspections, and in all cases of medical certificates issued in violation of the relevant statutory provisions, appeals shall be filed.

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