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Adequacy and Expected Replacement Ratio of Mandatory Pension Funds in Bulgaria

Adequacy and Expected Replacement Ratio of Mandatory Pension Funds in Bulgaria. Albena Ivanova Actuary Financial Supervision Commission Bulgaria. Workshop on Private Pension Provision – Tallinn, September 6-7 th 2007. A Three-Pillar Model. Ist Pillar Mandatory social insurance PAYG.

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Adequacy and Expected Replacement Ratio of Mandatory Pension Funds in Bulgaria

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  1. Adequacy and Expected Replacement Ratio of Mandatory Pension Funds in Bulgaria Albena IvanovaActuary Financial Supervision CommissionBulgaria Workshop on Private Pension Provision – Tallinn, September 6-7th 2007

  2. A Three-Pillar Model Ist Pillar Mandatory social insurance PAYG 2nd Pillar Supplementary mandatory pension insurance DC pension scheme managed by Pension Insurance Company(PIC) 3rd Pillar Supplementary voluntary pension insurance DC pension scheme managed by PIC Universal Pension Funds(UPF) – mandatory participation for persons born after 31.12.1959 (as of 01.01.2002) Professional Pension Funds (PPF) – for persons working under heavy or harmful conditions category І and ІІ (as of 01.01.2000) Voluntary Pension Funds (VPF) (as of 1994) VPF under occupational schemes (as of 01.01.2007)

  3. FactorsAffecting Replacement Ratiofrom 2ndPillar • Continuance and type of contributory period • age of entry in the pension system • retirement age and early retirement age • interruptioninthe working career • Contributionsin individual accounts • contributory incomeand rate of increase • contribution rate • Feespaidby contributors • Rate of return • Demographic factors for life long pensions orthe period for the term payments • Actuarial assumptions

  4. Parameters and Assumptions for Replacement RatioForecast- UPF • contributory income – average wage • contributionrate – 5 % in 2007; • fees – 5% from each contribution, 1% investment fee; • rate of return – 6% per year from 2007; • contributory period – full period of contributions: –male – 40 years; –female – 37 years; –uninterruptedworkcarrier

  5. Replacement Ratio forPension System Entrants in 2010 (fullcontributory period)

  6. Dynamics of Replacement Ratio -UPFRetirement Age – male: 63 years (*60 years ), female: 60 years(different contributory periods)

  7. Sensitivity Test of Replacement Ratio-UPF

  8. Parameters and Assumptions for Replacement Ratio Forecast - PPF • contributory income – average wage forlabor categories I and II -working under heavy or harmful conditions • contributionrate– 12 % for I category and7 % for II category; • fees – 5% from each contribution, 1% investment fee; • rate of return – 6% per yearfrom 2007; • contributory period – minimum contributory period: –I category – 10 years; –II category– 15 years; –uninterruptedworkcarrier

  9. Dynamics of Net Replacement Ratio-PPF * Incomplete contributory period

  10. Thank you for your attention! Albena Ivanova Ivanova_a@fsc.bg http://www.fsc.bg

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