"A lazy refusal to reform": pensions are already a huge burden on the state budget

The sharp increase in pensions over the past three years has led to a huge deficit in the budget of the National Social Security Institute (NSSI). Despite the objective need to update the incomes of the elderly, the lack of reform in the pension system has already resulted in the state subsidising almost half of the funds needed for pensions. In nominal terms, this already amounts to more than BGN 10 billion.

By way of comparison, ten years ago the state budget subsidised only about 20% of pension costs, or just over BGN 1.5 billion.

The biggest increase in the NSSI's spending on pensions took place in the last three years, when politicians raced to administratively increase incomes in order to win the ever-looming elections.

The draft state budget for 2023, prepared by Assen Vassilev, shows that a record transfer of BGN 10.6 billion to the NSSI is planned. In total, the planned expenditure on pensions for that year is almost BGN 20 billion.

Statistics show that normally almost all state transfers go to the Pension Fund.

In practice, this means that the pension system is not self-sustaining and that the income from insurance contributions is only enough to pay half of the pensions.

A historical reference by Economic.bg shows that the state transfer for pensions has increased more than five times in the last ten years.

A plan for the future?

And while it is easy to say that a pension reform will not be proposed overnight, next month or in the middle of the year, the Finance Minister's medium-term budget forecast for the next three years does not suggest it either.

"A budget of lazy refusal to reform". This is how former Economy Minister Nikolai Vassilev described Assen Vassilev's project on national television, stressing that the increase in pensions in recent years had been "indiscriminately uncovered by revenues and economic growth".According to the published plan, pensions will rise by 12% this year, by 9.6% next year and by 7.6% in 2025. The declining rate reflects the containment of inflation, which is built into the Swiss rule formula.

The minimum pension will also be raised in line with the Swiss rule, the maximum pension will remain at 3 400 leva and all contributions will remain at their current levels.

As a result, pension spending will amount to BGN 19.3 billion this year, BGN 21.4 billion next year and BGN 23.3 billion in 2025, or 10.4%, 10.8% and 11.1% of the country's gross domestic product (GDP) respectively.

This year's increase of more than BGN 3.5 billion was described as "remarkable" by Bulgaria's Fiscal Council after its experts published an opinion on Minister Vassilev's draft budget.

The institution is pushing for reforms to the pension and insurance model to find a fairer way of updating pension income.