Hristina Mitreva, Governor of NSSI: The current pension model has no alternative

Sonya Stamboliyska

Mrs. Mitreva, what can you say about the financing of the social security system at present?
 - At times of crisis the insurance systems anywhere in the world are exposed to pressure and face serious challenges. On the one hand, the number of insured people and the insurance incomes decrease, which reduces the revenues flowing into the system. On the other hand, the number of people who receive insurance benefits grows, leading to increased expenditures. The possibility to compensate this discrepancy between revenues and expenditures by the state budget also decreases due to the lower economic activity and tax revenues. This, in turn, leads to a situation when the accumulated reserves of the social security systems have to be resorted to. In systems where there are no such reserves, the money shortage increases. Unfortunately, the Bulgarian social security system belongs to this group.

How much is the deficit in the National Social Security Institute (NSSI) and how do you plan to handle it?
 - The planned deficit of the State Social Insurance Fund for 2010 is about BGN 2.1 bn, which will be covered by a subsidy from the state budget and, therefore, there will be practically no deficit. However, it is important to emphasize that the financial state of the social security largely depends on whether the estimated revenues from social insurance contributions and the forecasts about the number of insured persons and the dynamics of the average insurance income will be justified. Whether the shortage of funds will increase or decrease mainly depends on the state of the economy and the collection of insurance liabilities. These, however, are issues linked to the overall policy of the State in the economic, financial and social sphere. 

What mechanisms should be used in order to improve the collection of insurance revenues?
 - In order to improve the collection of insurance revenues it is necessary to improve the coordination between all institutions which are connected with the proper enforcement of labour and social security legislation. It is also important to take measures for reducing the administrative burden on businesses and insured people. In many cases, the costs for the bank transfer of the social security liabilities by the payer to the National Revenue Agency are too high. This discourages both businesses and self-employed people to pay their insurance contributions.
Another strand of action could be to improve the servicing of  insurers and insured persons, mainly by introducing more electronic services. Last but not least, the issue of investment in human resources and the strengthening of the institutions responsible for improving the collection of insurance liabilities should not be underestimated. 

At the end of last year the social security burden for employers was reduced. What steps will be made with regard to the insurance contribution?
 - Indeed, the pension insurance contribution was cut down by 2% in 2010 - the reduction for employers was by 1.1%, and for insured persons - by 0.9%. This was one of the most important anti-crisis measures of the Government aimed at preserving existing jobs, limiting the cases of concealment of insurance incomes and of circumventing of security legislation. The measure has also helped to increase the disposable income of employees, which is also necessary at a time of crisis because this stimulates domestic demand.

How should the pension system be reformed? What model should be applied?
 - Let me make it clear that the current pension model has no alternative. Relying on the "security through diversity” principle is the best form of social security protection for the elderly people against economic and social risks. 
On the one hand, the first pillar of the pension system is an example of how social solidarity works in practice. It has universal coverage, protecting the elderly from impoverishment, and the purchasing power of their incomes against inflation. Its greatest advantage is that the pension rights of people with lower social security contribution – the unemployed, people with career breaks, mothers, parents of sick children, and disabled people - are also guaranteed. On the other hand, the second and the third pillar encourage people to take personal responsibility for the amount of their future pensions.