Upload
gerald-baldwin
View
214
Download
0
Tags:
Embed Size (px)
Citation preview
Warsaw, 19 September 2006
1
FinancialSupervisionCommissionBulgaria
SUPERVISION OF PENSION SYSTEMS – CURRENT TRENDS AND ISSUES. INTERNATIONAL EXPERIENCE.
PENSION FUNDS REGULATION AND SUPERVISION IN BULGARIA
BISSER PETKOVDeputy Chairman of Financial Supervision Commission Head of Social Insurance Supervision Division
2
FinancialSupervisionCommissionBulgaria
Agenda
1. Development and Regulation of Funded Pension Provision
2. Institutional Organization of Pension Supervision
3. Supervisory Approach
4. Challenges Facing Regulation and Supervision of Supplementary Pension Provision
3
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension 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
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension 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. Voluntary supplementary retirement provision.
• Voluntary Pension Funds
* Universal Pension Funds - mandatory participation for all born after 31.12.1959Professional 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
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension Provision (3/12)
2004 2005
Net Replacement Ratio 51.0 % 51.6 %
Pensions / GDP 9.1% 9.0 %
Pensioners 2 320 444 2 301 669
Dependency Ratio 93.4 % 91.6 %
Bulgarian Pension System Current Characteristics
Contributions (2006): 23 % 4% supplementary pensions
19 % state pensions
65 : 35 contributions are divided betweenemployer and employee; to be 50:50 in 2009
6
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension Provision (4/12)
Number of Funds
24 (8 pension fund management companies, each managing 3 types of funds; 1 more PIC to start operation of 3 more funds s by the end of the year)
Types Fully funded, DC accumulated in individual accounts;Open-type funds (universal and professional) administered by private Pension Insurance Companies
Market Value(in th EUR)
645 371 of net assets, as of 30.06.2006
Foreign Participants
Substantial share of foreign companies shareholders participation in pension management companies
Concentration High concentration over past years; as of 30.06.2006 the two major pension fund management companies have 67% of assets and 63% of insured persons
Main Characteristics of Funded Pension Provision Market
7
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension 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
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension Provision (6/12)
Structural (dis)similiarities between the Bulgarian and EU Pension System Models
EU BulgariaApplicable EU Regulations
Statutory retirement provision schemes 1st pillar
PAYG scheme, publicly managed 1st pillar (I-A by OECD concept)
Regulation 1408/71Regulation 574/72
Capital retirement provision, privately manages schemes 2nd pillar(I-B by OECD concept)
Regulation 1408/71
Regulation 574/72Occupational retirement provision schemes 2nd pillar
Directive 1998/49Directive 2003/41Directive 86/378
Individual voluntary retirement provision schemes 3rd pillar
Voluntary retirement provision through individual or occupational contributions/or contributions from a third party 3rd pillar
9
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension Provision (7/12)
2001 2002 2003 2004 2005
Market Capitalisation of Bulgaria Stock Exchange – Sofia
3,7 4,3 7,9 10,5 20,1
Insurance and Health Companies Premium Income
1,6 1,9 1,9 2,2 2,6
Pension Funds Net Assets
0,6 1,0 1,4 2,1 2,7
Bank Assets 41,1 45,0 50,2 65,0 78,3
Depth of Financial Market - Assets as Share of GDP in %
10
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension Provision (8/12)
Evolution of PF Investment Portfolio Structure %
31.12.200431.12.200
5 30.06.2006
Securities issued or guaranteed by the government
56 52 42
Shares 3 7 13
Corporate bonds 7 10 13
Municipal bonds 1 1 1
Bank deposits 19 19 22
Mortgage bonds 11 9 7
Investment property 2 1 1
Investments abroad 0,5 1 2
11
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension Provision (9/12)
Investment Restrictions (%)
MandatoryPension Funds
Voluntary Pension Funds
Government issued or backed securities
no limit no limit
Shares and RightsShares andUnits in Mutual Inv Schemes
Shares in Special Purpose Investment
2015
( 5 in MIS managed by one company)
5
5 single issuer10 in MIS managed
by one company
10
Municipal Bonds 15 5 single issuer
Bank Deposits 25 5 single bank
Bonds (corp and mortgage) 55 5 single issuer
Investment property 5 10 (up to 5% in single property)
Forex 20 30
Derivatives established in FSC draft ordinance
established in FSC draft ordinance
12
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension Provision (10/12)
Fees Structure
Fund TypeFront-up Fee
On Each Contribution
Management Fee
Transfer Fee
Mandatory Pension Funds
Up to 5 %
Up to 1 % of fund’s assets on an annual basis
Up to 20 BGN*
Voluntary Pension Funds
Up to 7 %Up to 10% generated profit
Up to 20 BGN
*1 EUR = 1.95583 BGN exchange rate pegged to EUR under currency board
13
FinancialSupervisionCommissionBulgaria
1. Development and Regulation of Funded Pension Provision (11/12)
Source: FSC, 2006
• Increased contribution amounts
•Lower social contribution evasion rates
0
1000000
2000000
3000000
4000000
5000000
2002 2003 2004 2005 2006 2007 2008 2009 2010
Universal Professional Voluntary Total
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
14
FinancialSupervisionCommissionBulgaria
0
10%
20%
30%
40%
50%
60%
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
Total I pillar II pillar
Net Replacement Rate
1. Development and Regulation of Funded Pension Provision (12/12)
15
FinancialSupervisionCommissionBulgaria
Agenda
1. Development and Regulation of Funded Pension Provision
2. Institutional Organization of Pension Supervision
3. Supervisory Approach
4. Challenges Facing Regulation and Supervision of Supplementary Pension Provision
16
FinancialSupervisionCommissionBulgaria
2. Institutional Organization of Pension Funds Supervision (1/7)
Bulgarian National Securities Commission (Since 1996) Staff: 125
Insurance Supervision
Agency (Since 1997) Staff: 45
State Insurance Supervision Agency (Since 2000)
Staff: 43
Financial Supervision
Commission (FSC)
(Since March 1, 2003)
Staff: 197
Transition from Sector Based to Integrated Supervision
17
FinancialSupervisionCommissionBulgaria
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
FinancialSupervisionCommissionBulgaria
2. Institutional Organization of Pension Funds Supervision (3/7)
Financial Supervision Commission Organisational Structure
FSC Chairman
Deputy ChairmanInvestment Supervision
Deputy ChairmanSocial Insurance
Supervision
Deputy ChairmanInsurance
Supervision
Supervision Activity
Regulatory Regimes and Risk Evaluation
On Site Inspection Unit
Off-site Inspection Unit
Regulatory Regimes Unit
Risk Evaluation Unit
3 Members
Supervisory measuresCourt representation
19
FinancialSupervisionCommissionBulgaria
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
FinancialSupervisionCommissionBulgaria
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
FinancialSupervisionCommissionBulgaria
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
FinancialSupervisionCommissionBulgaria
2. Institutional Organization of Pension Funds Supervision (7/7)
Cooperation and 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
FinancialSupervisionCommissionBulgaria
Agenda
1. Development and Regulation of Funded Pension Provision
2. Institutional Organization of Pension Supervision
3. Supervisory Approach
4. Challenges Facing Regulation and Supervision of Supplementary Pension Provision
24
FinancialSupervisionCommissionBulgaria
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
FinancialSupervisionCommissionBulgaria
3. Supervisory Approach (2/5)
ReportingApproach and
evaluation
program
Response from the
management and follow-up activities
Supervision
planning and
strategy
Examination function
Enforcedadmin.
measures
Analysis,
evaluation
and
priori-
tising
Organization and staff
Off-site supervision
On-site supervision Supervisory measures
Supervisory Methods and Processes
26
FinancialSupervisionCommissionBulgaria
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
FinancialSupervisionCommissionBulgaria
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’s WEB-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
FinancialSupervisionCommissionBulgaria
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
FinancialSupervisionCommissionBulgaria
Agenda
1. Development and Regulation of Funded Pension Provision
2. Institutional Organization of Pension Supervision
3. Supervisory Approach
4. Challenges and Possible Solutions for Funded Pension Funds Supervision and Regulation
30
FinancialSupervisionCommissionBulgaria
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
FinancialSupervisionCommissionBulgaria
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
FinancialSupervisionCommissionBulgaria
Q & A?
Thank you for your attention!
e-mail: [email protected]: (+359 2) 94 04 575 fax: (+359 2) 829 43 21