The Cabinet approved on July 20 a bill on a State Fund Guaranteeing Stability to the Public Pension System.
That was the first step towards the establishment of the so-called Silver Fund, Labour and Social Policy Minister Emilia Maslarova said.
The fund will cover the higher pension costs of the National Social Security Institute (NSSI) when the demographic crisis deepens.
As much as 500 million leva is allocated from the state budget for initial capital of the fund this year.
From 2007, 50 per cent of the privatisation proceeds and 10 per cent of the budget surplus will be transferred to the fund. It will be kept by the Bulgarian National Bank as part of the fiscal reserve. The fund can only be used in 10 years to cover NSSI shortage.
The idea is that the fund builds up resources, making a profit, using and joining central bank-guaranteed projects that bring in additional resources, so that we could stabilise the solidarity pillar of the pension system, Maslarova said.
She recalled that two thirds of pensioners will see their income go up with the increase of the minimum monthly contributory-service and retirement-age pension to 85 leva, effective July 1 2006, and a one-time rise of five per cent for pensions under 120 leva and four per cent for pensions under 150 leva.
The rises will be paid in September since the NSSI needs technological time to process the calculations. The increase will cost the budget 68.9 million leva until the end of the year, Maslarova said.
The idea to create a Bulgarian version of Silver Fund was first raised during the term of office of the previous government.
Belgium was the first European country to create such a mechanism to protect funding for its pension system in 2001.
In the coming decades, there will be a fundamental shift in the age structure of the Belgian population. The cumulative effects of the declining birth rate and the big increase in life expectancy are causing the population to age. Moreover, a large number of people the baby boom generation will be reaching retirement age around 2010. As a result of these trends, by 2030 the number of people aged over 60 will have increased sharply, Belgian experts have found.
According to the forecasts, the proportion of persons aged 60 or over in the Belgian population will increase from 21.8 per cent in 2003 to 30.6 per cent in 2030. In addition, the numbers of young people (0-19 years) and the population of working age (20-59 years) are expected to decline in absolute terms, even if the total population still increases. By 2030, that will result in a dependency ratio i.e., the non-working population in relation to the population of working age of 105.9 per cent.
These demographic changes will obviously have a major impact on the operation of social protection in general and on public revenue and expenditure in particular. It is clear that pensions and health care will be the main items accounting for the increased expenditure, although the negative impact of pensions only appears after 2010.
The rise in the number of people aged 60 and over, and the decline in the number of persons aged under 60, also have an influence on the productive capability of the economy. According to the Belgian projections, the growth of their countrys economy should slow during the coming decades to 1.5 per cent of GDP in 2030, owing to the diminishing labour force.
Governments are now looking to reduce public debt to avoid a crisis and have found ways to attain a small structural surplus over the medium term. The Silver Fund (Zilverfonds), also called Ageing Fund, was created to link debt reduction and financing for the ageing crisis as well as to maintain public support for the strategy.
Reserves accumulated in the fund will later be used to at least partly cover budgetary costs to support the elderly. In Belgium, funding comes from both government surpluses and exceptional receipts, such as proceeds of UMTS licence sales.
According to existing legislation, Belgiums Silver Fund can only invest in government bonds and, therefore, accumulation of assets within the fund does not affect general government gross consolidated debt.
In order not to interfere with financial markets, the fund only acquires specially issued treasury bonds.
The fund, while serving as a catalyst for continued budgetary discipline, also works under the Committee on Ageing of Belgium, which provides the government with yearly updates of the budgetary costs of ageing and recommends how much more aid the fund needs.
After four years of existence now, the Silver Fund has acquired capital of almost 12 billion euro from the various sources it is allowed to.
In a first reaction to the Bulgarian Cabinets decision to move the bill on the Silver Fund, Hassan Ademov, chair of the parliamentary committee on labour and social policy, said the fund would not be a panacea for solving the problems of the pension system. In his view, the funds goal is increase pensions and improve the standard of living of retired people, but in a long-term rather than in a short-term period.
When the demographic situation in this country becomes critical, this mechanism would start to act, said Dikran Tebeyan, deputy chair of the Bulgarian Industrial Association. He believes that it is a reasonable decision to ban the usage of money from the fund in the next 10 years because demographic data show that the ageing of Bulgarias population and the low birth rate will become more serious.
According to the figures, in a few years 100 workers will be paying the pension of 110 retirees, while at the moment this ratio is 100:91.
