With money for pensions we could build the Trakia highway

Pension funds have accumulated assets of over BGN 2 thousand million, what are you planning to do with them, Mrs. Petkova?

- We are always looking for good investments to provide our clients with higher Rate of return. I wouldn't say there are many possibilities. So we hope the amendments we recommended to the social code will soon be adopted. Most important is the increase of the relative share of corporate bonds as a type of investment instrument. Now we are allowed to invest up to 25% of the assets in corporate bonds, the idea is to make them 40%.

Who would benefit from that, the funds or their members?

- Corporate bonds are very useful instruments on the capital market. They involve preliminary examination of all documents, financial statements and business practices of the company that will issue bonds and receive money from us. That means that companies that are not transparent in their business, that apply bad practices could not become corporate bond issuers. The more such issuers there are, the higher will be the level and the class of our business. Their presence shows the developing potential of the capital market. Because the next step of such companies is to become public companies trading their stocks on the stock exchange.

It turns out you are striving at reforming the business?

- We are pursuing two aims with those bonds: one of them is purely investment-oriented, related with the interest of the insured persons; the second is strategic, to give impetus to the development of the capital market. See what's happening with the Trakia highway after the concession deal failed. The state was planning to cope with the construction of the remaining 120 km alone for which it would need about EUR 300 million but the problem was financing. As for me, I keep on wandering how all "the interested", including the government, still forget that there are some BGN 2 thousand million in certain pension funds, which are about to become 3 thousand million and which we are all the time wandering where to invest. And we have many times repeated that one of the possible investments is in infrastructural projects. And could there be a better infrastructural project than that? We are ready to help. Our market observations and analyses show that the banks would also participate in the financing of such project.

Isn't the government aware where it can find money for the highway?

- Obviously not and now is the time to give it a hint that there is a way to structure those EUR 300 million in the form of a government bond. It can be also a revenue bond which means that once it is issued all investors will be able to buy from it thus financing the construction of the highway. Naturally, those participating in the financing will expect a certain return on their investment. That may happen from the revenues coming after the highway is put to operation.

Investment in infrastructural projects is considered quite risky. Does that scheme bear any risk for the money of the insured persons?

- For anything done by the state, including that infrastructural project, the highest risk is ... the political risk. Should the present government structure the project correctly and in a manner not giving any chance to the next to change it according to the political situation, everything would be all right. Otherwise, the whole undertaking becomes pointless. Schemes like that have already been applied successfully in many countries. It is high time for us to follow.

Can that bond be taken fully by the pension funds?

- It is not that the pension funds have no EUR 300 million. And it is not that if that bond is issued and guaranteed by the government we won't have the right to purchase it in total. But first we have to know what return we would achieve. We won't make any compromise with that. Our possible participation in the construction of Trakia highway is not an end in itself but rather another way to fulfill our main obligation, i.e. to realize Rate of return in favor of our clients. There is also another thing that may stop us buying the whole bond, since the major principle we are bound to follow is the diversification of the investment instruments for the sake of security.

Are you going to insist on raising the contribution rate for those born after December 31, 1959, members of the general pension funds? Now it is 5% on the salary?

- We suggested a contribution rate of at least 7% already 3 years ago. It is even present in a number of documents as the next step to be taken in the pension reform. We even hoped that from the beginning of this year it would be 7%. Our judgment however of what's happening in terms of overall alteration of the insurance balance makes us change our mind. More realistic is to make the contribution 6% from next year. Not because that is enough but because we have another apprehension. We are afraid that when the state becomes a special contributor and undertakes payment of the pension contribution in the ratio employee/employer/state 8:10:12, it would have troubles in administrating that variant. We are worried that that might result in delay of payments of the contributions of our clients.

Is it so difficult?

- It may sound ridiculous but the difficulty may come from dividing 5% in 8:10:12.

So 6% would be better, in order to divide it easily?

- No matter whether it is 5, 6 or more per cent I think it is unreasonable to tear each contribution into pieces of 8:10:12.

How can you avoid it?

- The personal contribution of the people born after December 31, 1959 should from next year go directly into their individual accounts in the general pension funds.

You actually say that from 2009 the rate of the contribution for a second pension to the general pension fund should become 8%, don't you?

- Yes I do. That is a personal contribution, why should it be divided to pieces? It is logical: 8% being the personal contribution, 8% should go to the general pension fund and that's it.

That's what the pension funds think about it.

*Daniela Petkova is a member of the management board of the Private Pension Funds Association