What is the real state of the Bulgarian pension system?

Bulgaria's pension system is one of the most sensitive and exploited topics in public and political debate. It is often used as a convenient tool for manipulating public opinion and shifting blame for the budget deficit between different political groups.

However, the problems are complex: demographic crisis, aging population, informal employment, and ever-increasing pension costs.

Additional pressure on the system is exerted by the annual modernization of pensions under the so-called "Swiss rule," which, in addition to not being strictly adhered to, is often modified.

The National Social Security Institute (NSSI) warned of the seriousness of the situation in its much-discussed Actuarial Report for 2024

In it, the Institute states that

"if the current legislation remains in place, the financial pressure on the sustainability of the state pension system will be at its strongest in the next decade."

At that time, both pension expenditure and transfers from the state budget to cover the shortfall, measured as a share of GDP, will be at their highest. Nearly 50% of total social security expenditure will be financed by transfers from the state budget rather than from the system's own revenues, the report says.

However, a check by Economic.bg of the NSSI data showed that the moment when the transfer from the budget covers 50% of pension expenditure has already arrived.

What the figures show

Data on the implementation of the state social security budget (SSS) for the period 2019-2024 show a steady increase in pension expenditure.

The table shows that in just five years, pension expenditure has more than doubled, from BGN 9.8 billion to BGN 21.6 billion. The transfer from the state budget to the SSS budget has tripled, from BGN 3.6 billion to BGN 10.9 billion.

Logically, this also increases the share of this transfer in total expenditure.

Possible options for addressing the issue

There are options for addressing the pension shortfall.

The most obvious one is to increase the social security contributions of workers, which is already included in the Updated Medium-Term Budget Forecast for 2025-2028, despite the stated intention of Prime Minister Rosen Zhelyazkov's cabinet not to raise taxes. The document states that there will be a two-stage increase in social security contributions to the Pension Fund:

• From January 1, 2027, the contribution will increase by 1 percentage point;
• From January 1, 2028 – the contribution will increase by 2 percentage points.

Business sees another opportunity in the multi-fund pension system, whose main idea is that accumulated savings for second and third pensions can be invested in different funds with different levels of risk. This will create a distinction between today's 20-year-olds, who are at the beginning of their careers and have at least 40 years ahead of them, and therefore can take on higher risk, and the older part of the population, which is approaching retirement and is better suited to investing in a conservative fund.

In its analysis, Economic.bg also looked at other options for dealing with the deficit in the National Social Security Institute, including removing some funds from the Institute's system because of their social or insurance nature. Examples of such funds are the General Illness and Maternity Fund and social pensions that are not linked to employment and would be more logically included in the social assistance budget.

At the end of the year, the government is expected to finalize a roadmap for improving Bulgaria's pension system. It will show whether there is a need to increase contributions or the retirement age in the country.

Translated with DeepL.