Republic of Bulgaria

1
TRANSITION COSTS and their impact on adequacy

• Dragomir Draganov
• Senior expert
• Ministry of Labour and Social Policies
• Republic of Bulgaria

2
CONTENTS

1. Bulgarian pension reform main outcomes
2. Post-reform adequacy
3. Transition costs definition and measurement
4. Measures for smoothing the transition costs and
   their impact on adequacy
5. Future developments
6. Conclusions

3
Bulgarian pension reform

• Introducing a new multi-pillar pension
  legislation
• Decreasing the contribution rate
• Rising the retirement age and introduction of new
  eligibility conditions
• Introducing a new pension formula and a new
  indexation mechanism
• Disallowing the early retirement

4
Post-reform adequacy
5
Transition costs definition

• Two problems
• Conceptual ill-defined notion
• Country specific post-reform parametric reforms
• Pure transition costs the sum of diverted
  employees contributions the government
  compensations

6
Transition costs - measurement
7
Measures for smoothing the transition costs

• Indexation of pensions
• Index2000 inflation (75 ) average
  contributory income increase (25 )
• Index2007 inflation (50 ) average
  contributory income increase (50 )
• Pension calculation reduction of pensions of
  those insured in the private mandatory system
• State subsidies
• Minimum and maximum pension amounts

8
Measures for and their impact on adequacy (1)
9
Measures for and their impact on adequacy (2)
10
Measures for and their impact on adequacy (3)
11
Future developments (1)
12
CONCLUSIONS

• Transition costs are not so high in comparison
  with the other public pension system liabilities
• Current taxpayers (state subsidies) and current
  pensioners (indexation) will cover the transition
  costs
• Reforms have had a positive impact of current
  adequacy of public pensions but will have a
  negative impact on their future adequacy
• The general question is Would private pension
  system be able to compensate it?

13
Thank you for your attention!

• Dragomir Draganov
• draganov_at_mlsp.government.bg
• Republic of Bulgaria
• Ministry of Labour and Social Policy
• http//www.mlsp.government.bg