Transforming Universal Pension Fund Savings into Effective Supplementary Mechanism for Pension Security in Bulgaria

Universal pension funds in Bulgaria were introduced in 2002 as part of a major reform of the national social security system. They were intended to become a key component of the pension framework, complementing the pay-as-you-go pillar over the medium and long term. However, more than two decades later, these funds continue to play a marginal role in providing retirement income. This paper addresses three central questions: (1) What are the main factors preventing universal pension funds from effectively supporting current retirees? (2) To what extent can they contribute to pensioners’ income over the next 5 to 15 years? (3) What regulatory changes are necessary to enhance the long-term viability of fully funded pension pillars? The study employs Monte Carlo simulations, descriptive and statistical analysis, and a combination of deductive and systematic approaches. The research shows that universal pension funds could become an effective tool for supplementing the pay-as-you-go component of the social security system – but only if further reforms are implemented. At present, they can hardly fulfil this role due to several factors: the unjust reduction of the individual coefficient, the relatively short accumulation period for the first cohort of retirees, and the assumed conservative investment strategy, which does not favour returns exceeding the growth rate of average insurable income, crucial for the benefit amount due by the first pillar of the pension system.