Annotation. Public pension systems fulfill a long-term commitment - the subsistence of the adult population unable to work . In light of the demographic crisis, the lack of financial sustainability can lead to a future increased pressure on workers (social insurance and tax payers) or beneficiaries (pensioners). Therefore, it is necessary to constantly study and search measures both in order to achieve a balance whereby the rate of the social security contribution will be sufficient to finance the pensions paid and at the same time to maintain the established pension fund at a reasonable level depending on the size of the system. 

Introduction

The aging of Europe's population poses serious challenges to governments with regard to the balancing of public pension systems and providing the necessary means of subsistence of the elderly now and in the future. Therefore in the last few decades, interest in the financial sustainability of pension systems has constituted the main reason for pension reforms in European countries [6] so that they can withstand the expected demographic changes.

The organization of a pension system can affect the operation of the related pension model, the supply of labor, the economic activity coefficient, etc. Therefore, frequent changes in the parameters, apart from the fact that they could create social tensions between working and contributing people and the beneficiaries of the system (the retired), they can also affect the delivery of the pension promises.

1.    Challenges before the sustainability of the public pension systems

The question arises how to define sustainability. The difficulty stems from the fact that no precise definition has been formulated yet. The most cited definition of sustainability is the one put forward by the United Nations : "sustainable development is development, that meets the needs of the present, without compromising the ability of future generations to meet their own needs [9]. According to European commission there is no clear definition for sustainability, but it can be used for government’s ability to service its own obligation through future revenues [7]. According to definition of Organization of Economic Co-operation and Development (OECD): „Fiscal policy can be thought of as a set of rules, as well, as an inherited level of debt. And a sustainable fiscal policy can be defined as a policy such that the ratio of debt to GNP eventually converges back to its initial level" [4 , 11]. The definition of the OECD can be interpreted in the following way: a pension system is sustainable when the established percentage of contributions is sufficient to finance the pensions paid and simultaneously the formed pension fund is constantly maintained at a reasonable level, depending on the size of the system. From here, however, we can go to a broader scope for discussion, depending on the perspective of the partners in the system. Contributors may consider it to be sustainable if the rules regarding the terms and amount of social security payments do not change, even if there are changes experienced by pensioners. On the other hand pensioners will consider it sustainable as long as they receive their expected pensions, even if it is associated with changes in the rules for the social security contributors. In both cases there is a risk that the system in its future development exerts an unexpected pressure on one or the other group. It is exactly the reduction of the possibility of such unexpected events occurring in the future that forms the foundations of the idea of sustainability.

Studies have shown that public pension expenditure as a percentage of GDP endure almost constant increase [10] and with some exceptions, they are expected to continue to increase in the future (Figure 1) [8, 328 ] .

 Figure 1. Public pension expenditure as % of GDP 

Within the EU the share of public pension expenditure in relation to GDP varied widely in 2010- from 6.8 % (the Netherlands) to 15.3 % ( Italy) with a EU average of 11.3% . Forecasts of the European Commission are that in 2060 the share of pension expenditure in the GDP in the EU27 would be 12.9% on average. In Denmark, Estonia, Italy, Latvia and Poland a decrease in the index is expected, the most significant ( -3.8% ) to be in Latvia. In all other countries an increase is forecast in the share of pension costs. The most significant increase is expected in Luxembourg ( 9.4 %), followed by Cyprus ( 8.8 %) and Slovenia ( 7.1 %). The most stable situation is expected in Portugal (an increase of only 0.2%) , France ( 0.5 %) and Sweden ( 0.6 %).

Pension costs are an important factor for the current, medium and long-term equilibrium of the social security budget and the public fiscal program. Therefore, sustainability is bound both with the balancing of revenues and the implementation of the pension promises and with the ratio between the socially insured (contributers) and pensioners (beneficiaries). Therefore, the measures carried out in the system must correct also the negative impact of population aging on its balance.

In 2012, pensioners in the EU were120 million or nearly 24% of the total population [5 , 4]. The forecasts of the European Commission are that by 2060 the share of the EU population aged over 65 is expected to increase to almost one third of the entire population [8, 299 ] . A relative measure to determine the size of the aging population is old-age dependency ratio - the ratio between the number of people over 65 and those of persons between 15 and 64. Studies of the European Commission show that in most European countries this ratio is low [8 ]. This means that a significant proportion of adults, although not yet of retirement age, have already left the field of work. In this regard, the recommendations are related to events supporting employment and the continuation of active working life. 

2. Problems before the sustainability of the Bulgarian public pension system

The sustainability of any public pension system depends on the extent to which it relies on the contributions and taxes accumulated by working people. The means of funding and eligibility conditions must be so organized as to achieve a balance both between contributions and pension rights, and between  the number of contributors and those receiving pensions.

The balance of the Bulgarian pension system is negative. At present, it has a significant deficit to which the economic crisis largely contributes. Figure 2 shows the deficit of the Pensions fund after the 2000 pension reform.

 Figure 2. Deficit of the Pensions fund, million BGN^[1]

Data show that the Bulgarian public pension system cannot be considered stable. It is strongly dependent on the state budget, relying on subsidies from it. In addition, it should be taken into account that in 2009 the state joined as an insurer with an additional 12% contribution for each insured person which actually represents further state funding. Despite the government intervention the long-term actuarial balance^[2] for the period 2006 – 2050 of the State Public Social Security as a whole remains negative for the whole period: from -14,5% in 2007 to –3,5% in 2031 (when the best situation will be attained according to the actuarial forecasts), back to –8% in 2050. [1, 9].Until that moment the public pension insurance system has to mobilise all its available reserves and possibly to undergo more reforms in order to be most adequate to the increasing payments to pensioners.

The number of pensioners is the main factor that determines the amount of the cost of the pension system. In combination with the number of insured persons it gives an idea about the financial burden on workers related to the subsistence of those unable to work. The number of Bulgarian pensioners is a function of several factors: the low birth rate, the aging population and the relieved conditions of retirement before the reform.

However, to determine the financial sustainability of the public pension scheme, it would be more correct to explore the dependency ratio, expressed by the ratio between the number of pensioners and the number of insured persons. It is an important indicator of the system due to the expected aging and the changes in the demographic structure.

Since 2000, insured persons whose social security contributions maintain the pension system have been fewer than the pensioners. The dependency ratio, which was 74.34% in 1997 (ie 74 pensioners per 100 insured people), became 108.02% in 2002 (more pensioners than insured people). Since 2003, the number of insured persons has increased for the reasons mentioned above, while the number of pensioners has decreased. As a result, the ratio fell below 100 to reach 77.4%  in 2010. However, the increased unemployment due to the economic crisis had an impact also in 2012, the ratio increased to 80.1%. [2, 178, 221; 3, 11]. The situation is influenced also by the substantial emigration of young people to other EU countries.

Currently the unused reserves to accumulate additional retirement resources are the unemployed, some adults (aged 15 - 64) who are out of work (as they are already receiving pension benefits) and those employed in the "gray" economy. In order for these reserves to be used, changes should be made not only in the pension system, but also in the overall regulatory environment (additional changes in tax legislation and the imposition of heavier penalties for established violations of the financial discipline). 

Conclusion

One of the main aims of the Europe 2020 strategy is to achieve a target employment rate of 75% in the age group 20-64. This objective will result in a slower rate of increase in old-age dependency ratio. But the increase of the employment rate should not only be achieved among the adults group, but also among other groups traditionally characterized by lower levels of employment: women, migrants, people with disabilities, minorities, etc. It is obvious that besides following the strategy Bulgaria needs to do complementary reforms, since the financial crisis has delayed the addressing of the consequences of demographic changes and has highlighted the weaknesses in the current system organization. The slower economic growth, the budget deficit, the financial instability of the overall economy and the low employment definitely hamper the adequacy and sustainability of the Bulgarian pension system in relation to the implementation of the agreed rules. Therefore, it will be inevitable to take greater efforts to increase employment and labor productivity, to increase the legal retirement age and to introduce additional adjustments related to the rules for determining the cost. The challenges are significant, but can largely be overcome with a rapid response and implementation of appropriate action policies. 

References

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