/ world right now information/ Two pensions, underneath the present laws, are categorically lower than one. That is what the estimates present.
However let me clarify: the pension system is kind of complicated, there are lots of variables, parameters, indicators and situations in it, it’s concerning the future. However in Bulgaria there isn’t a official ministry, company or fee to take a look at this technique as an entire. So I used to be compelled to undertake this job, fairly voluntarily.
Why do I declare that two pensions in our nation are lower than one? With a purpose to have an trustworthy reply to this query, a full simulation of an individual’s total insurance coverage interval needs to be executed. It’s not doable to attract conclusions based mostly on common concerns. Nicely, I went forward and did this.
A few of our fellow residents have learn the Social Safety Code, others have written it, others have voted for it, in all probability with out studying it, however nobody in our nation has but made this calculation. What will we achieve in a single model, within the second and what will we lose?
Good, dangerous, within the first, within the second pillar till 2015, these born after 1959 had been obliged to divide their obligatory insurance coverage contribution into two unequal elements. One, the bigger one, goes to the Social Insurance coverage Establishment, in opposition to which an individual will obtain a pension from the Nationwide Social Insurance coverage Establishment, and the opposite, smaller one – goes to this particular person’s private account in some common pension fund /UPF/, from which it’s anticipated to be paid in the future second or supplementary pension.
We’ve to appreciate that two pensions can actually turn into lower than one. Why? As a result of if an individual insures himself just for a state pension and all his obligatory contribution goes to the Nationwide Social Insurance coverage Establishment, he’ll obtain one pension, however in full. If, nonetheless, he’s additionally insured in a common pension fund /UPF/, his state pension might be diminished. Logical, as a result of not all of his contribution went there. It’s doable that if the pension from the UPF doesn’t compensate for its discount from the LLC, the 2 pensions will turn into lower than one.
My calculations present that the situation that the 2 pensions are precisely equal to 1 could be very easy. The yield that an individual receives on his account within the UPF should be greater than the expansion price of the common insurance coverage revenue for the nation. As a result of the state pension is set by the common insurance coverage revenue for 12 months earlier than retirement.
In actuality, the info for the interval from 2002, when statistics on pension funds are revealed, to the tip of 2016 is as follows: enhance within the common insurance coverage revenue for the nation in actual phrases, with out inflation – 4% per 12 months, profitability of all insured, in any common pension fund – 0.85% every year.
Now ask your self the query and, accordingly, the reply: if I, being born earlier than 1960, contribute all my insurance coverage contribution at a yield of 4% every year, and also you divide it into two and contribute one half additionally at 4% every year, however the different earns you simply 0.85% yield when your second pension catches up with the discount. The reply is easy: by no means.
Somebody might ask me why I’m coping with this concern now and never 4-5 years in the past. I’m doing it now as a result of it is just since 2015 that folks have a selection. Anybody who was born after 1959 was coated by the UPF and if they’ve greater than 5 years left till retirement, they’ll decide out of the UPF insurance coverage. For this goal, a 1-page utility is submitted to the NRA workplace of residence, the template is on the company’s web page, the query is to fill it out, signal it and take it to this place. When you do that, from the subsequent day onwards all of your insurance coverage contribution goes to the Nationwide Social Insurance coverage Establishment, and the cash you may have gathered up to now within the Nationwide Social Insurance coverage Fund, which is about BGN 3,200 on common for these insured between the ages of 54 and 60, additionally goes in a state fund, within the so-called Silver fund. And your pension is not going to be diminished by a single %. That is one chance.
This step is essential, particularly for ladies. The Nationwide Income Company will settle for a girl’s utility to refuse insurance coverage within the UPF provided that, on the day of submitting the appliance, this lady has not reached the age of 56. If she has already accomplished them, the NRA will refuse to just accept her utility and he or she stays for all times with a diminished pension, i.e. with two pensions that might be lower than one.
And what are the principles to obtain a lifetime pension, i.e. whereas we dwell?
This query is extraordinarily vital. Along with the quantity, pensions additionally differ by way of safety. Each pension, each from NOI and from UPF, is a promise – somebody can pay you a sure amount of cash each month. It is likely to be a bit, we all know state pensions are low, and they’re low now and so they will not get a lot greater. However… they’re lifelong. Each month, so long as an individual is alive, he receives his pension, no matter world monetary crises, from native crises. Thus far, so long as I can bear in mind, there was no interruption within the cost of pensions in Bulgaria. I labored on the BNB in the years of excessive inflation, I do know the efforts of the colleague who led the emission administration throughout a galloping rise in costs, to have sufficient banknotes to pay the pensions. And what you should purchase with this pension with such inflation is one other matter, however there have been banknotes. That is the lifetime pension.
Whereas a pension from a personal pension fund is way, a lot, a lot, instances extra unsure than a state one.
I might even say – the pension from the UPF in Bulgaria is at present an phantasm, it can’t be lifelong. Right here you can find somebody who will open the Social Safety Code and say: however there may be an article there that claims that the pension from the UPF should be for all times. And he might be proper – there may be such a textual content. Sure, however there isn’t a cash to implement this rule…
Bulgarians ought to know: the way in which during which life pensions are paid out of the gathered private funds is one, and that’s – the accounts of all those that retire needs to be united in a typical pool. And from this lump sum, with the cash of those that don’t dwell to dwell, the pensions of the long-lived needs to be paid. That is an insurance coverage precept and it has been working not for years, however for hundreds of years all around the world.
In our nation, nonetheless, the identical CSR says that your pension from the UPF needs to be for all times – sure, you retain your account. And, God forbid, after your premature departure from this world, there may be cash left in that lot and your heirs ought to obtain it.
However the query is: the place will the long-timers get the cash?
As a result of statistics present that 27 out of each 100 ladies will outlive the common anticipated life expectancy in our nation after retirement, which is shut to twenty years. And they are going to be older than 85. Who can pay them their pensions when in batches are they out of cash?
18 out of each 100 males will dwell greater than 16 years after retirement, the place will their cash come from? This downside is known as bureaucratically in order that it’s not clear to individuals – “the regulation doesn’t regulate the disbursement part”.
Nicely, till the regulation settles the “disbursement part” you need to know that the pension out of your private UPF account is an empty promise.
Bulgarians needs to be conscious that there’s an digital service on the Nationwide Institute of Social Sciences. It’s essential to have a code obtained both by the Nationwide Insurance coverage Company or by the Nationwide Insurance coverage Institute, and you may verify since 1997 for which years you had been insured, for what incomes, and from there – make an evaluation of the pension. Individuals who have 5-6 years, even 10 years left till retirement, have already “missed the prepare”. And who is aware of what they can not do to their benefit.
However younger people who find themselves now beginning to insure themselves and know that the state pension, even whether it is greater than the sum of two pensions, even when they offer up insurance coverage in a personal fund, by definition, is not going to be sufficient for them to dwell a dignified previous age. Right here, these individuals can handle themselves any further. How? By saving and investing further funds exterior the non-public pension funds in Bulgaria, that are inappropriate, too costly and unprofitable.
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Lubomir Hristov, financier. He was the Chief Economist and member of the Board of the BNB (1990-1994), advisor to the director of the World Financial institution (1995-2000), labored in American firms (2001-2006), was the director of the Central Depository (2007-2008) , member of an skilled group on the European Fee (2008-2011), member of the Advisory Group to the European Banking Regulator, London (2011-2016), chairman of the Board of the Institute of Chartered Monetary Consultants.
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