Nikolay Vasilev: Do Not Transfer Your Retirement Fund to the National Social Security Institute
We, the society, must completely forget about the nationalization of the second pension pillar. I strongly oppose to the transfer of accounts to the National Social Security Institute (NSSI). This was stated by the former Economy Minister, Nikolay Vasilev, during a conference on "The challenges facing the pension system in Bulgaria. Strengthening the role of the second and third pillars", organized by the CFA – Certified Financial Analysts Association.
"I recommend that the role of the second and third pillars even intensifies. To do this, contributions of 5% must now rise to 10% in the coming years. Thus, a person will receive twice the pension," Vasilev pointed out.
He recalled that when the second and third pillars were launched, Poland, Kazakhstan and to a certain extent Hungary were given as good examples in the region. However, there are currently a number of problems in these countries, some of which started after the nationalization of the second pillar.
"Bulgaria is currently one of the best examples. Unfortunately, Hungary and Poland, which were exemplary, nationalized tens of billions of euros in various ways, which were actually the money of insured persons. Not only have the funds disappeared into their NSSIs, but the debts and budget deficits of the countries have increased. I.e. the money was just eaten up. If someone in Bulgaria tries to do something similar, it means the accumulated BGN 17 billion will be eaten on an ongoing basis. Then everything zeroes in. So we definitely have to stop any such desires, because at the moment they are encouraged to be done voluntarily, "said the former Minister of Economy.
According to him, private pension funds have much more advantages than NSSI, where there is a huge deficit. These include positive profitability, as well as personal lots that are inherited.
"If the young had a choice, they would choose to be fully insured in private pension funds. It is very important to know that money increases every subsequent year. In addition, the accumulated amount is inherited upon death of the insured person, while there is no personal lot in the national social security system and the relatives take nothing", Vasilev explained.
He gave the example of Japan, where there is no state pension. People save a lifetime through pension systems, bank accounts, investment funds and other means. Thanks to this, the average deposit is approaching about 2 million dollars per person.
The former economy minister also commented on the criticism to pension funds. In his words, they are extremely unfair, and such analyses use erroneous methodologies and manipulated data.
"Despite all sorts of claims, pension funds are beating inflation. In 18 years it is about 77%, and the yield of universal pension funds is over 100%. The voluntary funds are even over 110%. The yield is decent and it is higher than inflation", Vasilev is adamant.
According to him, there are several serious errors in the calculations of opponents of private insurance. First - the methodology according to which the yield of BGN 100 invested 20 years ago is compared with the growth of inflation. This is wrong because the amounts that were managed by the funds 20 years ago were extremely small and cannot be compared to the amounts of 2019.
"Secondly, Bulgarian funds are compared with inflation in Bulgaria, German funds with inflation in Germany. That's an unfair comparison. Moreover, critics have not indicated what currencies they are comparing in. Maybe they use randomly selected currencies. Something more, their numbers are frankly wrong", Nikolay Vasilev points out.
He also gave advice to pension funds – they should do more to inform the public about the activity and benefits of their services.