Pension insurance system

Pension insurance system

The main goal of the three-pillar pension model is to combine the advantages of the pay-as-you go and capital-based systems to ensure pension income that would substitute a significant part of the income before retirement.

Here are some facts that could be useful:

In 2000 the foundations were laid of the three-pillar pension insurance system in Bulgaria. The three-pillar system combines the advantages of the pay-as-you-go system (the state system of pension insurance – 1st pillar) and the capital-based systems (Supplementary Mandatory – 2nd pillar, operating through the universal and professional funds, and the supplementary voluntary pension insurance – 3rd pillar).

The pay-as-you go system is based on the principles of solidarity between generations. This means that the working generation of today, through their social security contributions, provides the payment of pensions to the pensioners. The deterioration of the demographic structure also means that the number of working persons is decreasing and that poses major challenges to the state social security system in paying adequate pensions in the future.

This is why the capital systems have become more important: taking the opportunities of the capital markets, these systems aim to increase the funds deposited by the insured persons. With the capital principles the amounts deposited are accumulated on the individual account and are possessed by the insured person. The amount of the pension is determined by the amount of funds accumulated on the account and the regulations of the respective pension fund. The capital systems have been set up in countries with the best pension insurance in Europe: The Netherlands, Sweden, Denmark, Switzerland, Great Britain, etc.

How does the pension system work?

To the state social security system (1st pillar), supplementary mandatory pension insurance was added the 2nd pillar - supplementary mandatory insurance, that works through the universal and professional pension fund. The supplementary voluntary pension insurance (3rd pillar) functions through voluntary pension funds. Thus, in addition to the state pension you can get a pension from the funds for supplementary pension insurance and pensions, based on the capital principle.

Last update: 26.08.2019