Банкеръ Weekly


Every Man for Himself in Collision over Pensions

Divergent interests of ministries, trade unions and employers hinder reforms in the social security sector

Pension reform started looking like a sports all around competition, but with constantly changing rules. On the pitch of the social security sector, the government agencies, trade unions and employers are trying to dominate. Some players offer all sorts, even contradictory measures to stabilize the weak retirement system, others defend existing privileges with all means. One thing is clear - the package of reforms adopted about a year ago, is a played match in which all lost.

Despite the increase in contributions by 1.8% and the lifting of the limits of economic activities, the budget deficit in the National Insurance Institute does not diminish - rather it grows, and according to the optimistic forecasts it is to reach BGN300 million by year's end. For 2012 the prospects are even more bleak. For the pensions of 2.2 million people BGN 7.3 billion is provided, which is

by about BGN250 million more than in the current year. Of these, BGN200 million will be spent on increased widows' allowances and the rest will go to higher rates of new pensions. The situation could be even more critical, but because of the increased length of service by four months and the bonuses for each year of service in 2012 on the shoulders of social security system will be about 4,000 pensioners less then what could be expected.

Although the government wants to lift all pensions that are below BGN200, it is obvious that there is no money for this in the budget. After weeks of discussing estimates and debating figures and data, Finance Minister Simeon Dyankov postponed 'higher' pensions for better times. Deputy Prime Minister might have not liked the calculations of the trade unions, according to which the pension increase of 10% as envisaged as of July 2012 will cost about BGN347 million more to the Treasury. The Cabinet tried to evade the problem by raising only the lowest pensions, but met resistance from employers, rightly claiming that this would punish working people who will need to put more into the insurance system. Logically the maximum pension was not touched and remained BGN700, while along with it, the highest insurable threshold of BGN2000 was not changed.

But given the apparent collapse and

imminent budget deficit

in the state security sector, the government began exploring options to reform their own pension reform. After the trump card with the increase of the length of service was not played well, they started talking in the public domain about lifting the retirement age. Compared to the current parameters men retire at 63 years and women - at 60 and this is set to gradually grow by 2021 until these ages reache 65 and 63 years respectively. Minister Dyankov, however, tried to push the idea that the first step to review the issue of increasing age may be visible even in the draft budget 2012, thus ensuring long-term higher pensions for Bulgarians and reduce the deficit in the National Insurance Institute. At the Tripartite Council Finance Minister, however, denied such suggestions made after both trade unions and businesses firmly stood against these ideas.

So far, the most real target for Dyankov remain police and military. They are already disliked by society because of their privileged position in the system. And statistical data are against them. Income from social contributions paid by the two ministries are now by 12% less than the cost of this system, resulting in taxpayers having to pay additionally BGN300 million each year. Therefore the decision to increase the service required for retirement of employees in the security sector from 25 to 27 years from 2012 seems logical, but there is fierce resistance and the outcome will remain unclear until the final decision is reached. The Cabinet approved the change, but the social partners have not yet said what they think.

Trade union structures in the Ministry confirmed their readiness to initiate protests if the measure comes into force next year. They even threatened that in such scenarios, many of the 7,000 people working in the system who are eligible to retire will do so. So the budget of the department will be extraordinarily burdened because they will have to receive their 20 wages due in this case. The police stood behind the administration in the Interior Ministry and did not accept their colleagues to be called clerk as used by Prime Minister Boyko Borisov. At a meeting to discuss the draft budget PM ordered the reform in both ministries to begin, including major

job cuts and labour differentiation

while restrictions should affect mostly civilian employees.

As a result of the desire for urgent reform the Cabinet decided to hit those who are more vulnerable. It was decided the 20 retirement wages to be reduced in half for administration. But just like everything in the Army service this decision may just turn out to be penultimate. Unions do not accept military servants in uniforms to be favoured at the expense of civilian servants and insist on equal treatment.

In the puzzle of interests, probably no one will prevail and 2012 will kick off without sudden changed in this respect, while the keeping of the current status will be disastrous to the state, workers and employers.

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