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SUPERVISION OF PENSION SYSTEMS – CURRENT TRENDS AND ISSUES. INTERNATIONAL EXPERIENCE.

SUPERVISION OF PENSION SYSTEMS – CURRENT TRENDS AND ISSUES. INTERNATIONAL EXPERIENCE. PENSION FUNDS REGULATION AND SUPERVISION IN BULGARIA BISSER PETKOV Deputy Chairman of Financial Supervision Commission Head of Social Insurance Supervision Division. Agenda.

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SUPERVISION OF PENSION SYSTEMS – CURRENT TRENDS AND ISSUES. INTERNATIONAL EXPERIENCE.

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  1. SUPERVISION OF PENSION SYSTEMS – CURRENT TRENDS AND ISSUES. INTERNATIONAL EXPERIENCE. PENSION FUNDS REGULATION AND SUPERVISION IN BULGARIA BISSER PETKOV Deputy Chairman of Financial Supervision Commission Head of Social Insurance Supervision Division

  2. Agenda

  3. 1. Development and Regulation of FundedPension Provision(1/12) Background 1994 – Voluntary pension funds launched - fully funded basis,individual accounts. 1999– Legal regulation of pension provision activity (Adoption of the Law for Supplementary Voluntary Pension Provision and the Mandatory Social Insurance Code). 2000 – Establishment of the State Agency for Social Insurance Supervision and licensing of the first pension insurance companies. – Professional Pension Funds launched. 2002 –Universal Pension Funds launched. 2003 – Integration of supervision authority over the non bank financial sector • Establishment of Financial Supervision Commission(FSC) • Social Insurance Code adopted

  4. 1. Development and Regulation of FundedPension Provision (2/12) • I. Mandatory Pay-as-you- go-system. • National Social Security Institute • National Revenues Agency • II. Mandatory supplementary retirement provision. • Universal and Professional Pension Funds* • III. Voluntarysupplementary retirement provision. • Voluntary Pension Funds • * Universal Pension Funds - mandatory participation for all born after 31.12.1959 • Professional Pension Funds - for workers in hazardous work conditions (1st and 2nd category of labour) • Centralized collection of social insurance contributions by NRA. • Public control over the activity of PICs (Trustee and Advisory Boards)

  5. 1. Development and Regulation of FundedPension Provision (3/12) Bulgarian Pension System Current Characteristics

  6. 1. Development and Regulation of FundedPension Provision (4/12) Main Characteristics of Funded Pension Provision Market

  7. 1. Development and Regulation of FundedPension Provision (5/12) Regulatory framework • Social Insurance Code • Financial Supervision Commission Act • Secondary legislation acts adopted by: • Financial Supervision Commission • Council of Ministers • Bulgarian National Bank, Ministry of Finance, NSSI Recent Regulatory Changes • Introduction of occupational pension schemes (transposition Directive 2003/41) • Liberalisation of pension funds investment regime

  8. 1. Development and Regulation of FundedPension Provision (6/12) Structural (dis)similiarities between the Bulgarian and EU Pension System Models

  9. 1. Development and Regulation of FundedPension Provision (7/12) Depth of Financial Market - Assets as Share of GDP in %

  10. 1. Development and Regulation of FundedPension Provision (8/12)

  11. 1. Development and Regulation of FundedPension Provision (9/12)

  12. 1. Development and Regulation of FundedPension Provision (10/12) Fees Structure *1 EUR = 1.95583 BGN exchange rate pegged to EUR under currency board

  13. 1. Development and Regulation of FundedPension Provision (11/12) PF Net Assets (in th BGN) 31.12.2002 - 31.12.2010 (estimated forecast) 1 EUR = 1.95583 BGN exchange rate pegged to EUR under currency board • Increased contribution amounts • Lower social contribution evasion rates Source: FSC, 2006

  14. 1. Development and Regulation of FundedPension Provision (12/12) Net Replacement Rate Total I pillar II pillar 60% 50% 40% 30% 20% 10% 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 2048 2050 2052 2054

  15. Agenda

  16. Transition from Sector Based to Integrated Supervision 2. Institutional Organization of Pension Funds Supervision (1/7) Bulgarian National Securities Commission (Since 1996) Staff: 125 Financial Supervision Commission (FSC) (SinceMarch 1, 2003) Staff: 197 Insurance Supervision Agency (Since 1997) Staff: 45 State Insurance Supervision Agency (Since 2000) Staff: 43

  17. 2. Institutional Organization of Pension Funds Supervision (2/7) Institutional Environment of Pension Supervision • Financial Supervision Commission • Ministry of Labor and Social Policy • National Social Security Institute • Ministry of Finance • Bulgarian National Bank • Financial Stability Consultative Council (Coordination Body)

  18. 2. Institutional Organization of Pension FundsSupervision (3/7) Financial Supervision CommissionOrganisational Structure

  19. 2. Institutional Organization of Pension Funds Supervision(4/7) FSC Objectives • Protecting the interests of the investors, insurance policy holders and pension insured persons; • Providing integrity, transparency and credibility of the financial markets

  20. 2. Institutional Organization of Pension Funds Supervision(5/7) Powers of the Financial Supervision Commission • Development of the regulatory framework • Licensing regime • Supervision • Sanctions Powers of the Deputy Chairman of FSC in Charge of Social Insurance Supervision • Issues authorisations as provided in the Social Insurance Code • Approves documents and defines the requirements thereof • Approves methodological guidelines, document samples, etc. • Orders on-site inspections • Implements enforcement measures and issues penalty decrees

  21. 2. Institutional Organization of Pension Funds Supervision(6/7) Institutional Independence of FSC • Autonomous institution created under a special legislative act • Reporting to Parliament • Selection of the FSC members by the Parliament with a 6 year term in office • Mixed funding (State Budget/ Supervised entities)

  22. 2. Institutional Organization of Pension Funds Supervision (7/7) Cooperationand Consultation • FSC is member of: • Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) (observer status); • International Organization of Pension Supervisors (IOPS); • International Organization of Securities Commissions (IOSCO); • International Association of Insurance Supervisors (IAIS). • Memorandums of Understanding and Exchange of Information signed with partner institutions.

  23. Agenda

  24. 3. Supervisory Approach (1/5) Characteristics of the style and approach implemented in Bulgarian pension supervision • Restrictive – license with strict requirements for stepping into the social insurance market • Proactive – on-going monitoring and regular interventions • Intensive – daily communication • Legislatively oriented (compliance based)

  25. 3. Supervisory Approach(2/5) Supervisory Methods and Processes Supervisory measures On-site supervision Off-site supervision Analysis, evaluation and priori- tising Supervision planning and strategy Approach and evaluation program Reporting Response from the management and follow-up activities Enforced admin. measures Examination function Organization and staff

  26. 3. Supervisory Approach(3/5) Preliminary Supervision Licensing Requirements for Pension Insurance Companies as regards: • Capital • Shareholders with significant participation • Managerial and controlling bodies and the actuaries • Internal control system • Technical equipment, staffing and information provision

  27. 3. Supervisory Approach(4/5) Off-site Supervision of Pension Insurance Companies (1) • On-going monitoring over • Asset valuation of pension funds, • Calculation of unit value • Keeping of investment limits • Information sources: • Daily reports by the PICs and the custodian banks submitted electronically to the FSC • Supervision over the contents of the PIC’sWEB-pages • Means of supervsion: • IT system for supervision (Е-fsc) through built-in filters • Supervisory activities/measures: • Requests for corrections • Imposition of enforces administrative measures • Imposition of property payments

  28. 3. Supervisory Approach(5/5) On-site Supervision of Pension Insurance Companies • Planning of examinations • Types of examination– planned (theme), and claims based • Integration of the off-site and on-site supervision

  29. Agenda

  30. 4. Challenges in Private Pension Funds Supervision and Regulation (1/2) • Regulation of the pay-out phase regarding the life-long pensions under the second pillar • Expanding the investment choice opportunities of participants in the voluntary pension insurance • Transition from the approach of quantitative portfolio limits to the prudent person investment approach

  31. 4. Challenges in Private Pension Funds Supervision and Regulation (2/2) • Integrated regulation of the financial markets in keeping with the EU directives • Transition towards functional integration and consolidated supervision over the non-banking financial sector • Change in the supervision approach and style: from traditional (static) to dynamic (risk-based)

  32. Q & A? Thank you for your attention! e-mail:petkov_b@fsc.bg phone: (+359 2) 94 04 575 fax: (+359 2) 829 43 21

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