In a significant development for pensioners, Bulgaria’s Ministry of Finance has announced a projected increase in pensions by 9.6-9.7% starting July 2025.
The adjustment aligns with the Swiss indexation rule, which factors in both inflation and income growth. Initial forecasts had suggested a smaller hike of 8.7%. Following the increase, the minimum pension is expected to rise to approximately 636-637 leva.
This move is aimed at bolstering pensioner incomes amidst rising living costs. The Ministry also confirmed that the COVID supplement would remain applicable to newly granted pensions next year, despite calls for its removal.
COVID Supplement to Stay Despite Concerns
The Ministry of Social Affairs had earlier proposed discontinuing the COVID supplement, arguing it had inflated pension costs and deviated from the principle of linking pensions to individual contributions.
Their analysis, supported by an International Monetary Fund (IMF) report, noted that the supplement had essentially become an embedded part of the pension system.
However, the Finance Ministry opted to retain it, acknowledging its importance in supporting pensioners during challenging times.
Potential Changes to Pension Indexation Rules
The Ministry of Finance is also exploring reforms to the Swiss indexation rule used for annual pension adjustments. Current calculations equally weigh the growth in insurance income and inflation.
Proposed changes include altering the weighting of these two components or shifting the update period from July to April, potentially aligning better with economic cycles and inflation trends.
Addressing Pension Cap and Non-Employment Benefits
Reforms targeting equity and efficiency in the pension system are also under consideration. The Ministry of Social Affairs has proposed converting pensions unrelated to employment into financial benefits managed by the Social Assistance Agency.
This would streamline the process and differentiate contributory pensions from social support mechanisms. Another proposal involves removing the existing pension cap of 3,400 leva.
Advocates argue that eliminating the cap would incentivize individuals to declare and insure their full incomes, potentially increasing overall contributions to the pension fund.
Tackling Disability Pension Issues
Stricter measures are being suggested to address unlawful disability pension payments. Currently, pensions are sometimes paid beyond the validity of TELK (Medical Expert Commission) decisions. The ministry aims to enforce stricter adherence to TELK deadlines to curb these unauthorized payments.
Minimum and Maximum Insurance Thresholds
The Ministry of Social Affairs has also put forward a plan to introduce minimum and maximum insurance thresholds. This aims to reduce the proportion of insured individuals reporting disproportionately low incomes, ensuring a fairer and more sustainable pension system.
Looking Ahead
These reforms reflect a broader effort by Bulgarian authorities to modernize the pension system, balancing fiscal responsibility with the need to support an aging population.
While the proposed changes have sparked debate, they signify a commitment to addressing systemic challenges and ensuring a fairer distribution of benefits.
With pensions set for a significant increase and discussions on systemic reforms ongoing, 2025 could mark a pivotal year for Bulgaria’s pension system and its beneficiaries.