INVESTMENT REGIME IS NOT LIBERAL ENOUGH
Kiril Chervenkov, Lukoil Garant-Bulgaria Executive Director, to the BANKER weeklyMr. Chervenkov, a possible reduction of the insurance burden and an increase in the payments to the second-pillar pension insurance funds have been frequently discussed lately. How will that affect private companies? When can we expect a significant increase of the second pensions?- The additional obligatory pension insurance in Bulgaria is carried out on the basis of the so called capital covering principle. It means that the amount of pensions received from universal pension funds will depend mainly on the funds accumulated in the individual accounts of the insured people. That's why we have always supported and will continue to support ideas for reaching a reasonable and balanced amount of the additional obligatory pension insurance payments. The plans to increase their amount without raising the general insurance burden is in favour of the insured people. That is because the Bulgarian pension system consists of two parts - a state and a private one which complement each other. It's clear that the bigger the deductions from the insurance payments for universal pension funds, the bigger the second pension. The present 3% installment does not guarantee the aim of the second pillar of the pension insurance which is to provide a pension of 20 to 30% of the insurance income received at the time of retirement. That can be achieved if at least 7 to 10% of the insurance income is paid to the universal pension fund. We realize that it is difficult to increase the additional insurance payments without increasing the insurance burden. Still, a decision of this kind deserves respect because it will guarantee the payment of pensions big enough to people who are now working actively and will retire after 2020.What do you think about the possible issuance of goal government securities guaranteed by the state in which private pension funds will be able to invest?- It depends on what their goal is. If the initiative aims at covering the current insufficiency of resources for payment of pensions on the part of the National Social Security Institute, while providing general reduction of the insurance burden, we support that decision. It would also solve one hot problem facing pension companies - the requirement to invest in government securities at least 50% of the assets of the obligatory and 30% of the assets of the voluntary pension funds. At present, in the terms of a budget surplus, the amount of securities issued by the government appears extremely insufficient. Moreover, all institutional investors and not just the pension companies compete for them. However, it is important that they are goal securities and provide a good yield.What measures should be taken in order for the investment activities of the companies to be encouraged? Is the investment regime liberal enough?- It is not liberal enough yet. A more flexible legislation may be very helpful for the improvement of the yield. It should not impede the adequate diversification of the funds assets. A greater diversification will guarantee a better combination between risk and yield in the portfolios.We think that initially the so called different investment decisions may be introduced in the voluntary pension funds. It means to let the people insured by state pension funds choose between investments of minimum risk and lower yet guaranteed yield and investments of higher risk and higher yield potential. Of course, the process should be implemented in accordance with the respective legal norms that guarantee adequate control on the part of the Financial Supervision Commission.How do you think will the pension insurance system and the currently operating companies develop in 2005?- I can only speak from our company's point of view. I expect that both the assets we run and the number of insured people we serve will keep growing. The pension system in Bulgaria is operating well and is growing without any particular problems.There are approximately BGN800MN accumulated in the pension funds so far. How does this money affect the development of the Bulgarian capital market?- Pension insurance companies have become a considerable factor on this market for the past five years. The amount of the accumulated funds confirms that. I am proud to say that Lukoil Garant-Bulgaria manages over BGN50MN of this amount. Despite the strongly restrictive investment policy which the company is obliged to follow in the management of the pension funds, I think that we have made great progress towards reaching a respectable position in the financial system of the country. Naturally, the assets accumulated by the pension insurance companies have a positive effect on the development of the Bulgarian capital market, because apart from being of impressive amount they come from a different source and are a brand new resource for this market.