Letter regarding the Draft Act for Amendment and Supplementation of the Social Insurance Code

To

MS. DESISLAVA ATANASOVA CHAIRPERSON OF THE PARLIAMENTARY GROUP "GERB-SDS"

MR. ATANAS ATANASOV CO-CHAIRPERSON OF THE PARLIAMENTARY GROUP "WE CONTINUE THE CHANGE – DEMOCRATIC BULGARIA"

MR. KIRIL PETKOV CO-CHAIRPERSON OF THE PARLIAMENTARY GROUP "WE CONTINUE THE CHANGE – DEMOCRATIC BULGARIA"

MR. MUSTAFA KARADAYI CHAIRPERSON OF THE PARLIAMENTARY GROUP "MOVEMENT FOR RIGHTS AND FREEDOMS"

MR. TOSHKO HADZHITODOROV CHAIRPERSON OF THE PARLIAMENTARY GROUP "THERE IS SUCH A PEOPLE"

MS. KORNELIYA NINOVA CHAIRPERSON OF THE PARLIAMENTARY GROUP "BSP FOR BULGARIA"

MR. KOSTADIN KOSTADINOV CHAIRPERSON OF THE PARLIAMENTARY GROUP "VAZRAZHDANE"

SOFIA, 19.09.2023

REGARDING: DRAFT AMENDMENT AND SUPPLEMENT TO THE SOCIAL INSURANCE CODE

DEAR LADIES AND GENTLEMEN, MEMBERS OF PARLIAMENT,

With this letter we would like to present to you a draft amendment and supplement to the Social Insurance Code (SIC). The draft has been prepared jointly with the Bulgarian Private Equity and Venture Capital Association (BVCA), the Bulgarian Entrepreneurial Association (BESCO), Endeavor Bulgaria, "Fund Manager of Financial Instruments in Bulgaria" EAD (FMFIB) and the Bulgarian Association of Supplementary Pension Insurance Companies (BASPIC). The proposed changes aim to ease the investment regime for supplementary pension insurance funds by reducing the restrictions with regard to quantitative exposure and the types of permitted investment instruments and transactions.

Despite the statutory possibility introduced in 2018 for pension funds to invest in units/shares of alternative investment funds, such investments are almost non-existent, while according to Invest Europe data, pension funds in Europe invest approximately 30% of the total volume of attracted funds in alternative investment funds (AIFs). Members of the organisations we represent identified the main reason for the severely limited investments as being the lack of synchronisation between the requirements of the Social Insurance Code applicable to investments in publicly traded instruments and the investment regime for AIFs. When the SIC was amended in 2018, the specificities of investing in AIFs were not taken into account, which in practice prevents actual investment by pension funds, regardless of the general legislative possibility granted for this purpose. In this sense, the proposed amendments and supplements to the SIC create the necessary statutory preconditions for realising the possibility already granted by the legislator for supplementary pension insurance funds to invest in units/shares of AIFs.

At the same time, the introduction of policies aimed at improving the investment conditions of pension funds is a widespread practice among numerous European countries. The most recent example of this is the British government, which on 10 July announced that it had reached an agreement with nine pension funds in the United Kingdom, according to which by 2030 they will invest at least 5% of their core assets in startups and fast-growing companies.

In this regard, our organisations consider that the proposed changes will simultaneously create real opportunities for investment in AIFs by pension funds and lead to an increase in the capital of AIFs and the creation of opportunities for diversification of the portfolios of pension funds, which will improve the investment environment and provide broader access to capital for enterprises in their early and initial stage of development, including those with high added value. This will bring benefits to all insured persons, who will share in the benefits of the growth of such enterprises.

With this letter we attach the draft for your attention.

Yours sincerely,

Evgeni Angelov, Chairperson of the Bulgarian Private Equity and Venture Capital Association

Dobromir Ivanov, Chairperson of the Bulgarian Entrepreneurial Association

Momchil Vasilev, Executive Director of Endeavor Bulgaria

Pavel Lisev, Executive Director and Member of the Board of Directors of "Fund Manager of Financial Instruments in Bulgaria" EAD

Viktoria Hristova, Executive Director and Member of the Board of Directors of "Fund Manager of Financial Instruments in Bulgaria" EAD

Evelina Miltenova, Chairperson of the Bulgarian Association of Supplementary Pension Insurance Companies