Bulgaria's Pension System Faces Financial Strain Amid Demographic Shifts

The reliance of Bulgaria's State Social Insurance (SSI) on the state budget is set to continue growing, according to an actuarial report by the National Social Security Institute (NSSI). The report provides a long-term assessment of the financial condition of SSI funds up until 2070, revealing a significant gap between the actual pension contribution rate of 16.3% of insured income and the required rate of 37.5%. This discrepancy is attributed to the system's increasing generosity, which has outpaced the demographic trends, the dynamics of insured persons, their income levels, and the age structure of those insured under SSI.

The 2024 budget law indicates that the share of the transfer from the central budget to cover SSI shortfalls could reach 5.5% of GDP, potentially exceeding 6% in the following three years. In the long term, until 2070, the SSI deficit is expected to hover around 5% of GDP. In 2023, the average pension for employment was 55% of the average gross insured income. The net income replacement ratio, which compares the average monthly pension with the average net insured income, reached 69.9%.

In the coming years, the gross income replacement rate is projected to reach and possibly exceed 56%, its highest level for the period considered. However, in the long term, this ratio is expected to decline to around 43-44%. This decrease will be influenced by several factors, including the inclusion of income from the entire working career for those who started work after 1999 and the rule for pension adjustments based on a combination of the increase in insured income and consumer price inflation.

The required pension contribution rate is expected to remain around 37-38% in the medium term, with a gradual decrease to approximately 32%...