IMF`s Recommendation and Alternatives

International Monetary Fund visit in Bulgaria ended with two significant news. The first one was that IMF corrected positively its last forecast about Bulgarian economy development – the experts foreboded lower decline in GDP. This, however, does not have such a huge importance because, as IMF has already proved its forecast inexactness, as well as its inconsistency.

Recommendation of greater relevance and resonance, however, is other: the representatives recommended an increase in the retiring age. This, according to them, is needed because of the planned gradual reduction of social securities in the next few years, which will cause lower revenues in to the state pension fund. To increase revenue, the number of people who work and pay social securities should be increased and the number of those who receive – to decline.

Compared with retirees age in the European Union, the age in Bulgaria comes a few years earlier. Would be illogical people in our country to work less, so it makes sense people in Bulgaria to retire later than it is now. 

But this is only a temporary measure. It is impossible whenever the money for pensions are not enough, the retirement age to be raised, even more if the age increase exceeds the increase in life expectancy.

We have another proposal in which:

• people will retire whenever they want
• will pay a contribution towards a pension, but where they want
• will pay a contribution towards a pension, but how much they want
• will be able to plan more accurately their future pension
• And will bear full responsibility for their retirement.

This system is called "personal retirement accounts". IME proposal, in particular, includes the following features:

• Workers to save for their retirement, but not in to the state pension fund, but in a private retirement account about 10% of their salary. Exactly where to bring money, everyone chooses among different pension funds.

• Transition to the system of personal pension contributions is voluntary, i.e. who prefers to rely on the state and to pay 22 percent coverage is able to remain in the old system.
• State sets and ensures that the most important and basic rules for pension funds` operations are followed – transparency, governance, minimum yield restrictions on investment strategies
• The most important element is the guarantee for payment of pensions to current pensioners – money are needed that would come from the fiscal reserves, from the Silver Fund, the reduction of ineffective and completely unnecessary government spendings, privatization. IME calculations show that the transition cost will be about 7.5 percent of GDP in the first years of the reform.[1]

[1] Adriana Mladenova. „Moving towards capital pension system in Bulgaria. Effects on savings and investment in the economy." http://ime.bg/uploads/docs/7590f3_pensions_thesis_AM.pdf