BULGARIAN ASSOCIATION OF SUPPLEMENTARY PENSION SECURITY COMPANIES

1. BULGARIAN ASSOCIATION OF SUPPLEMENTARY PENSION SECURITY COMPANIES THE NEED AND POSSIBILITY OF INTRODUCTION OF MULTIFUND SYSTEM IN THE SUPPLEMENTARY RETIREMENT PROVISION ACTIVITY IN BULGARIA Milen Markov Chairman of Investments and Capital Markets Committee of BASPSC Conference“Development of Supplementary Retirement Provision in EU and the challenges for the joining countries” Sofia, Bulgaria, October 13, 2006

2. І.THE NEED OF INTRODUCTION OF MULTIFUND SYSTEM IN THE SUPPLEMENTARY PENSION PROVISIONІІ.POSSIBLE METHODS OF APPROACH AND NECESSARY ACTIONS FOR THE INTRODUCTION OF MULTIFUND SYSTEM IN BULGARIA

3. І.THE NEED OF INTRODUCTION OF MULTIFUND SYSTEM IN THE SUPPLEMENTARY PENSION PROVISION Fundamental reasons for introduction of a multifund system in countries with Pension Systems based on fully funded principal. (Chile, Peru, Mexico): 1. Achieving higher profitability through investing in portfolios with predominantly variable income assets and higher risk; HIGHERPROFITABILITY = HIGHER PENSION HIGHER PROFITABILITY= HIGHER RISK 2. Conforming the life cycle of the insured person with the risk of change of the indexes of the capital markets; 3. Granting the insured persons the right to determine the level of risk of the portfolio in which they are insured; 4. Clear definition of the different investment portfolio’s profiles;

4. Motives forthe introduction of the multifund system in Bulgaria 1. Development of the capital markets - high growth of the “Bulgarian Stock Exchange-Sofia capitalization; - development of the Corporate bonds market 2. Successful start and development of the Collective investment schemes– Investment Companies and Unit Trusts 3. Liberalization of the investment limitations 4. Achieving a mature stage in the development of the Supplementary Pension Provision System – successful implementation of a daily evaluation of the assets of the pension funds, effective control by the Finance Supervision Commission, clear rules for investment in the capital markets of countries members and non members of the EU.

5. Development of the capital market in Bulgaria Number of shares and bonds tradedon “BSE-Sofia” Market capitalizationof “BSE-Sofia” More than 9 time increase Market capitalization / Gross domestic product

6. Successful start and development of theCollective investment schemes • Number of local Investment Companies and Unit Trusts • Funds managed by local Investment Companies and Unit Trustsas of 30.06.2006 - Investment Companies - 92 147 BGN thousands. (47 114 EUR thousands) - Unit Trusts - 72 474 BGN thousands. (37 055 EUR thousands) • Foreign Collective investment schemesoffered in Bulgaria as of 30.06.2006 – 4 Management Companies offer a total of 37 different Unit Trusts, using the branch network of 4 banks.

8. Liberalization of investment limitations

9. ІІ.POSSIBLE METHODS OF APPROACH AND NECESSARY ACTIONS FOR THE INTRODUCTION OF MULTIFUND SYSTEM IN BULGARIA • Introduction of multifunds only in the Supplementary Voluntary Pension Funds • Limitation of the number and types of risk portfolios to 3 different levels of risk, with respect to the share of variable income securities - Conservativeup to 20 % - Standardup to 60 % - Aggressive up to 80 %

11. NECESSARY ACTIONS FOR THE INTRODUCTION OF A MULTIFUND SYSTEM IN BULGARIA 1. Changes in the Normative Framework – common initiative of FSC and BASPSC 2. The Pension companies should develop: - Investment strategy for the portfolios with different risk levels - Fund rules 3. Licensing of every investment scheme

12. MAIN ISSUES , WHICH SHOULD BE SLOVED BY THE CHANGES OF THE NORMATIVE FRAMEWORK 1. What should be the legal form of the mutlifunds: – one legal person with separate portfolios with different level of risk – each portfolio should be a separate legal person 2. Should the law include maximum and minimum quantitative limitations for the different portfolios or should this be defined in the Fund rules. 3. Should there be limitations of the number of funds managed by a single Pension company

13. MAIN ISSUES , WHICH SHOULD BE SLOVED BY THE CHANGES OF THE NORMATIVE FRAMWORK 4. Status of the already existing funds – determining their risk profile. Determining the type of fund for people who have not made a choice and for unpersonified contributions 5. The right to change funds managed by a single pensions company – taxes and how often it can be done 6. Binding the right to participate in a higher risk fund to the life cycle of a person 7. The amount of taxes collected by the different funds 8.Methodof the differentportfolio’s asset valuationand calculation of the value of units

14. POSSIBLE OBSTACLES AND PROBLEMS DURING THE INTRODUCTION OF THE MULTI FUND SYSTEM 1. Not enough interest and difficulties in choosing a specific risk portfolio by the insured persons 2. Not enough customers for the formation of a portfolio of a particular kind and difficulties with its effective management 3. Not enough actively traded shares on BSE-Sofia 4. The Pension Companies and FSC having difficulties with the administration of a larger number of funds

15. THANK YOU FOR YOUR ATTENTION QUESTIONS ?