Bulgaria reforms its supplementary pension system

Bulgaria has enacted significant reforms to its supplementary pension system through amendments to the Social Security Code. The reforms introduce a new multi-fund framework designed to align investment strategies more closely with an individual's age and retirement horizon. The new multi-fund framework will take effect from 1 January 2027.

Background

Bulgaria's pension system consists of three pillars:

• First pillar – The state pension system, financed on a pay-as-you-go basis through social security contributions.

• Second pillar – Mandatory supplementary pension insurance. For most individuals born after 31 December 1959, a portion of mandatory social security contributions is paid into an individual account with a privately managed universal pension fund (UPF). Contributions to the UPF under the second pillar currently amount to 5% of insurable earnings, comprising an employer contribution of 2.8% and an employee contribution of 2.2%.

• Third pillar – Voluntary supplementary pension insurance provided through privately managed voluntary pension funds. Contributions may be made by individuals, employers, or both.

All employees born before 1 January 1960 generally participate only in the state pension system under the first pillar. Employees born after 31 December 1959 generally contribute to both the first and second pillars unless they opt to transfer their participation entirely to the first pillar.

The reforms, which were published in the State Gazette on 17 March 2026, primarily affect UPFs under the second pillar but also introduce changes to voluntary pension funds under the third pillar. The reforms do not alter contribution rates or increase employer pension costs. Instead, they introduce new rules governing the investment and management of contributions.

Key details

Introduction of a multi-fund structure to UPFs

Under the existing model, all members in a UPF are generally invested within a single portfolio. As a result, younger workers with decades remaining until retirement and older workers approaching retirement have typically been invested under the same strategy despite having very different risk profiles and investment horizons.

The reforms seek to address these limitations by introducing a new multi-fund structure that provides different investment options based on age and proximity to retirement. Policymakers expect the new structure to improve long-term investment returns, particularly for younger members with longer investment horizons.

UPFs will be required to have three sub-funds with different investment profiles from 1 January 2027:

• Dynamic sub-fund: Intended primarily for younger members with a longer investment horizon. The fund may invest up to 90% of assets in variable-income financial instruments such as equities, reflecting a higher-risk investment strategy intended to generate higher long-term returns. Members under age 50 will be automatically allocated to this fund.

• Balanced sub-fund: Intended for members approaching retirement. The fund may invest up to 55% of assets in variable-income instruments. Members will automatically transition into this fund at age 50.

• Conservative sub-fund: Intended for members nearing retirement and focused on preserving accumulated savings. Variable-income instruments are limited to 25% of assets, and members will be automatically transferred to this fund three years before they become eligible for their pension benefit.

The model is designed to follow a member's working life cycle. Younger members will generally have greater exposure to growth assets with higher return potential, while investment risk will progressively decrease as retirement approaches.

Enhanced member choice

For the first time, members will be able to choose how their pension savings are invested based on their individual investment profile and risk appetite. Members may submit their choice of sub-fund to their pension company between 1 September 2026 and 30 November 2026. Members who do not make an election will be automatically assigned based on their age. However, members with three years or less until they become entitled to a pension will only be permitted to participate in conservative sub-funds.

Members who do not know which UPF receives their contributions can check this through the National Revenue Agency here (opens a new window), and the Financial Supervision Commission recommends obtaining guidance from qualified representatives of pension providers or their authorized intermediaries.

Members will have the right to change their selected sub-fund once per year in accordance with the procedures established by the legislation. The reforms also emphasize informed decision-making. Pension providers are required to assess members’ risk profiles and provide information and guidance to help members select an investment strategy that aligns with their objectives and appetite for risk.

Introduction of a multi-fund structure to voluntary pension funds

In addition to the mandatory second pillar, aspects of the multi-fund model will also apply to voluntary pension funds within the third pillar.

Under the previous framework, voluntary pension funds generally operated as a single fund with one investment strategy. Pension companies will be able to establish multiple sub-funds with different risk and investment characteristics, enabling members to select an approach that aligns more closely with their personal circumstances and retirement objectives. At least one balanced sub-fund must be offered.

Employer action: ACT

The reforms do not change the mandatory contribution rates payable to the supplementary pension system. Accordingly, employers are not expected to face increased pension contribution costs as a direct result of the changes.

However, employers may see increased employee interest in retirement planning and investment choices as implementation approaches. Employees may seek information regarding the new sub-fund options, age-based fund allocation rules, and the potential impact of investment choices on future retirement outcomes.

Employers should consider:

• Monitoring implementation of the new pension framework and any supplementary guidance issued by regulators or pension providers.

• Coordinating with pension providers regarding member communications and education initiatives.

• Preparing to respond to employee questions regarding the new sub-fund options.

• Reviewing and revising employee communications and financial wellbeing materials, particularly where retirement education is offered.

Further Information

Decree No. 107 Law on Amendment and Supplement to the Social Security Code | Official Gazette (opens a new window)

The FSC brought and adopted the by-laws for the launch of the multi-fund system | Financial Supervision Commission (opens a new window)