Past Performance and Costs of Bulgarian Pension Funds or How Two Pensions Are Less Than One in Bulgaria

15 Pages Posted: 30 Jul 2018

See all articles by Lubomir Christoff

Lubomir Christoff

ICFC; Institute of Certified Financial Consultants

Date Written: July 5, 2018

Abstract

The European Insurance and Occupational Pensions Authority (EIOPA) is required to report on costs and past performance of pension vehicles per EU Member state over a trailing 1-, 3-, 7- and 10 years. This paper reports on the costs and past performance of the three major categories of pension funds in Bulgaria per the specifications of the European Commission request to EIOPA.

The following conclusions are substantiated:

Returns are period-dependent and highly sensitive to the market cycle phase.

Pension funds in Bulgaria have produced below market returns on a risk adjusted basis over the 10-year period, ending in 2017. In the more recent 3-year period as well as in 2017, pension funds’ returns have beaten the benchmark.

Investors have obtained less than 30% of the pension fund returns in real terms in the past 10 years with the remaining over two thirds of the returns paid in fees and offsetting inflation. This result has improved markedly in more recent shorter periods with real returns accruing to investors accounting to between 42% and 69 % of pension funds’ returns with the remaining 31% to 58 % being paid in fees and offsetting inflation.

Two pensions are less than one. Under the current Bulgarian legislation participating in the mass Universal Pension Funds is detrimental to investors as the “supplemental” UPF pension cannot offset the reduction of the state pension, which investors would have been entitled to had they avoided contributions to UPFs altogether. This is due to the fact that past as well as future expected real returns of pension funds’ portfolios cannot yield high enough return in order for the UPF pension to fully replace the reduction in the state pension entitlement.

Keywords: Pensions, Pension Funds, Bulgaria, Investor Return, Real Return

JEL Classification: G23, G28

Suggested Citation

Christoff, Lubomir, Past Performance and Costs of Bulgarian Pension Funds or How Two Pensions Are Less Than One in Bulgaria (July 5, 2018). Available at SSRN: https://ssrn.com/abstract=3209429 or http://dx.doi.org/10.2139/ssrn.3209429

Lubomir Christoff (Contact Author)

ICFC ( email )

3422 Old Capitol Trail
Suite 1063
Sofia, FL 1142
Bulgaria

HOME PAGE: http://idfk.org

Institute of Certified Financial Consultants ( email )

3422 Old Capitol Trail
Suite 1063
Sofia, FL 1142
Bulgaria

HOME PAGE: http://idfk.org

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
15
Abstract Views
210
PlumX Metrics