SOFIA (Bulgaria), July 9 (SeeNews) – Bulgaria’s financial regulator will propose legislative changes that will increase investments opportunities for local pension funds and will boost competition in the sector, it said.
The Financial Supervision Commission (FSC) will propose changes in the Social Insurance Code that will enable pension funds to take part in initial public offerings (IPOs) and to invest a larger portion of their assets in shares and corporate bonds, FSC deputy chairman, Bisser Petkov, told a news briefing.
According to the draft amendments, pension funds will be able to invest up to 5.0% of their assets in shares offered in IPOs, up to 25% in other stocks and up to 40% in corporate bonds, Petkov said. Currently, pension funds in Bulgharia can invest up to 20% of their assets in stocks and up to 25% in corporate bonds.
In order to encourage pension funds to invest their assets rather than keep them in bank accounts, the FSC has proposed pension funds to be required to invest at least 95% of their average daily volume of assets calculated on a three-month basis.
Measures that are expected to increase competition on the mandatory pension insurance market include lowering taxes that pension companies collect from clients and scrapping restrictions for clients to switch between pension funds in the first two years after choosing a certain fund to invest in.
Maximum fees which pension funds collect from clients should be lowered by 0.1 percentage point yearly starting from 2010 until they reach 0.6% of the pension fund’s assets calculated on a yearly basis in 2013. The maximum fees that pension funds can collect from their clients currently equal 1.0% of the funds' assets calculated on a yearly basis.
The FSC also proposes to allow people to switch between pension funds for a fee in the first two years after becoming a pension fund client and free of charge after that.
“We think that this is a way to stimulate competition,” Petkov said.
Competition on the mandatory pension insurance market in Bulgaria is somewhat limited due to the fact that many people become clients of pension funds through the choice of their employer rather by their own decision.
The country, which joined the EU in 2007, is expected to introduce a multi-fund system on its voluntary pension insurance market in 2010 which will further increase the freedom of choice for pension funds’ clients. Under the multi-fund system, creating a balanced portfolio will be mandatory for pension funds, while setting up of high-risk and low-risk portfolios will be voluntary.
The draft changes propose by the financial regulator will be first studied by the Social Policy and Labour Ministry. They need to be endorsed by the government and parliament to become law.
Private pension companies in Bulgaria run three types of funds - voluntary, mandatory job-related and mandatory universal. The country of 7.6 million people has nine private pension companies which run nearly 30 pension funds. The net assets held by the pension funds are expected to grow to some 5.7 billion levs ($4.6 billion/2.9 billion euro) by 2010 after they rose by 53% to 2.318 billion levs last year.
(1 euro=1.95583 Bulgarian levs)
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