## 1. Various Population Projections

## Source details

**Canonical URL:** [1. Various Population Projections](https://www.imf.org/-/media/files/publications/selected-issues-papers/2024/english/sipea2024021.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/selected-issues-papers/2024/english/sipea2024021.pdf.md)
- [Structured JSON version](/-/media/files/publications/selected-issues-papers/2024/english/sipea2024021.pdf.json)

---

### Overview of the Bulgarian Pension System
- System structure:
  - First pillar: mandatory, defined benefit, pay-as-you-go administered by the National Social Security Institute (NSSI); contribution rate of "14.8 percent" of gross insurable income for individuals born after 1959 and "19.8 percent" for individuals born in 1959 or before.
  - Second pillar: mandatory defined contribution for individuals born after 1959 with a contribution rate of "5 percent".
  - Third pillar: voluntary defined contribution managed by licensed private pension providers.
- Major reforms and outcomes:
  - Early 2010s: pension freeze implemented; indexation mechanism described in source.
  - 2015 reform (implemented starting in 2016):
    - Reduced pension spending by "1½ percent of GDP" between 2014 and 2019.
    - Gradual increase in retirement age: from "63 and 8 months" for men and "60 and 8 months" for women to age 65 in "2029 for men" and in "2037 for women".
    - Increase in required minimum contribution period by two months every year until reaching "40 years for men" and "37 years for women by 2027".
  - Coverage and adequacy trends:
    - Coverage ratio (pensioners as share of population 65+) continued to decline and projected to remain below EU average by 2040 (2021 Ageing Report).
    - Expected years in retirement declined faster than the EU average.
    - Generosity measured by pension support ratio and benefit ratio declined after the reform; increases in pensions lagged wage growth.

### COVID-19 Measures and Their Fiscal Impact
- Scale and composition of pandemic support:
  - More than half of fiscal support to households in 2020–21 targeted pensioners; this accounted for "over 1 percent of GDP in 2021".
  - Support primarily took the form of pension increases and ad-hoc supplementary payments (bonuses).
  - Some measures initially temporary were made permanent in 2022 and included in pension calculations.
- Effects on pension adequacy and spending:
  - Pandemic measures increased the generosity and adequacy of pensions; old-age poverty dropped markedly in 2023.
  - Pension spending reached a historical high in 2023; the medium-term budget framework (MTBF) expects pension spending to continue rising.
  - Example changes: widow's allowances increased from "26.5 percent to 30 percent" of deceased spouse's pension; NSSI estimates this raises pension payment by "0.7 percent" in 2023.
- Revenue-side developments and imbalance:
  - Contribution rates and maximum insurable income left unchanged during the pandemic.
  - Share of contributors benefiting from the cap on social contributions rose from "6.4 percent in 2019" to "14.2 percent in 2023".
  - Contributions at maximum social insurable income represent "over 21 percent of total contributions" (up from "13.6 percent in 2019").
  - Maximum pension as a share of maximum insurable income evolved as follows:
    - "35 percent" over 2009–19
    - "40 percent" in 2020
    - "48 percent" in 2021
    - "62 percent" in 2022
    - "100 percent" in 2023
    - The increase in 2024 will bring this ratio to "91 percent".
  - Share of pensioners receiving the maximum pension fell from "2 percent in 2020" to "0.1 percent in 2023".
  - Result: contributions increasingly capped while the cap on pensions effectively disappeared, limiting revenue containment and increasing spending.

### Distributional and Adequacy Outcomes
- Minimum and low-pension indicators:
  - Share of pensioners receiving the minimum pension increased from "27 percent in 2016" to "35 percent in 2019"; the share reached "46 percent in 2022 and 2023".
  - Minimum pension dropped from "57 percent of the minimum wage in 2010" to "38 percent in 2019" and remained below the poverty line.
- Poverty and income:
  - Elderly (65 and older) remained the age group suffering the most from poverty until 2022; at-risk-of-poverty rates and median equivalized net income show elderly incomes significantly lower than other age groups.
- System characterization:
  - Bulgaria described as a low contribution–low benefit system; on the eve of the pandemic pension spending was "more than 5 percent of GDP lower than EU average".

### Fiscal Sustainability, Transfers, and Contingent Liabilities
- Fiscal mechanics:
  - By law, the pension system deficit is financed by transfers from the state; the system is not allowed to carry debt independently.
- Recent fiscal impact:
  - Transfers from the state to cover pension deficits increased by "2.3 percentage points of GDP between 2019 and 2023" and are expected to further increase in the coming years.
  - The share of pension payments financed by social contributions fell back to its 2015 level in 2023; MTBF expects only a limited recovery.
  - Pension-related fiscal transfers have jumped to over "5½ percent of GDP" and are expected to remain at this level in the coming years.
- Present value and accrued entitlements:
  - Accrued pension entitlements rose from "168 percent of GDP in 2015" to "186 percent of GDP in 2016" before declining to "178 percent in 2018".
  - Present value of pensions to be paid in the future based on accrued rights are among the lowest in Europe.
  - Accrued pension rights are overwhelmingly related to the pay-as-you-go system as the share of the private pension schemes accounted for less than "7 percent of accumulated entitlements in 2018".
- Risk implications:
  - Rising transfers weigh on the general government fiscal balance and may crowd out other spending or increase public debt.
  - Low contingent liabilities mitigate fiscal risks in the medium-term, in part due to low private-scheme accumulated entitlements.

### Demographics and Population Projections
- Historical and projected demographic trends:
  - Since 2005, the Bulgarian population has been shrinking due to a sharp decline in population below 65, while the population at retirement age (65 and older) increased.
- Population projection sources discussed:
  - EUROPOP 2019: projections for 2019–2100 underpinning the 2021 Ageing Report (covers 2019–70).
  - EUROPOP 2023: projections for 2022–2100 to underpin the forthcoming 2024 Ageing Report.
  - NSI (National Statistical Institute) 2023: recalculated population estimates and updated projections until 2090 incorporating census results.
- Table 4 (population growth, annual average in percent) excerpts:
  - 2005-2022 total: "-0.7"
  - Europop 2019 total (2022-70 projection): "-0.6"
  - Europop 2023 total (2022-70 projection): "-0.5"
  - NSI total (2022-70 projection): "-0.6"
  - 2005-2022 <65: "-1.0"
  - Europop 2019 <65 (2022-70): "-0.9"
  - Europop 2023 <65 (2022-70): "-0.8"
  - NSI <65 (2022-70): "-0.7"
  - 2005-2022 65+: "0.6"
  - Europop 2019 65+ (2022-70): "0.3"
  - Europop 2023 65+ (2022-70): "0.2"
  - NSI 65+ (2022-70): "-0.3"
- Old-age dependency:
  - Old-age dependency (65+/20–64) is projected to increase markedly in the coming three decades before declining according to Europop and national projections.
  - The 2021 Ageing Report shows old-age dependency will be the main driver of the projected increase in the public-pension-to-GDP ratio in the long run.

### Proportionality Measure, Benefit Formula, and Incentives to Contribute
- Proportionality measure (PM) definition:
  - PM = Present Value of Benefits ∕ Present Value of Contributions
  - A sustainable, actuarially fair pay-as-you-go system without debt implies PM = 1.
- Bulgaria’s PM and implications:
  - Bulgaria’s PM is significantly above 1, higher for younger cohorts than older cohorts, and higher than EU or Newer Member States (NMS) peers.
  - Example: a person born in 2000 can expect a pension about twice larger than his/her contribution based on calculations using the 2021 Ageing Report.
- Old-age benefit formula:
  - B = AII × IC × IP × AR
    - B is the pension benefit
    - AII is the national monthly average insurable income for 12 months preceding retirement
    - IC is the ratio between the average insurable income of the person and the average insurable income for the country in the periods of insurance (average of the monthly ratios calculated after 1999)
    - IP is the insurance period (contributory and non-contributory periods)
    - AR is the accrual rate
- Incentive effects and labor market consequences:
  - Because benefits are based on length of contribution period and insurable income rather than on contributions actually paid, the formula provides individuals little incentive to contribute. This contributes to widespread underreporting of wages and informal work.
  - Consequences:
    - Contributions-to-GDP ratio is low by EU standards.
    - Only about half of the working age population contributes to the mandatory pension system, while employment rate of working age population slightly exceeds "70 percent".
    - "46 percent of pensioners received minimum pension in 2023", reflecting large share receiving minimum pension.
    - Over "21 percent of contributions are now capped" (benefiting "14 percent of contributors").
    - Maximum pensions account for less than "0.5 percent of pension payments" and "0.1 percent of pensioners".

### Policy Recommendations to Improve Sustainability and Fairness
- Avoid further reductions in pension generosity as the primary adjustment instrument because:
  - It is undesirable socially given low adequacy and high old-age poverty.
  - It is unlikely to be politically sustainable amid demographic pressures.
  - It may increase incentives for contribution avoidance, undermining revenue from social contributions and personal income tax.
- Recommended focus on increasing incentives to contribute and strengthening revenue:
  - Revise the benefit formula to incorporate contributions actually paid, increasing perceived value of contributions and incentives to contribute.
  - Strengthening the link between benefits and paid contributions would increase pension system revenue and personal income tax revenue through better reporting of wages.
  - With strengthened finances, reduce fiscal transfers and create fiscal space for more productive spending.
  - Consider increasing the contribution rate (currently among the lowest in the EU) and eliminating the cap on social contributions (maximum insurable income) in combination with elimination of maximum pension to broaden the revenue base (noting over "21 percent of contributions currently capped, benefiting 14 percent of contributors").
  - Meanwhile, link the maximum social insurance income to wage growth to reverse recent sharp increases in the share of contributors benefiting from the cap and increase revenue.
- Expected distributional and fiscal effects:
  - Eliminating the maximum pension and cap on insurable income would further increase incentives to contribute and pension system revenue, and strengthen the role of social contributions in reducing high- and rising-income inequality.
  - From a general government fiscal perspective, increasing the maximum insurable income would be partly eroded by increases in spending programs linked to its level, which may improve social protection coverage and further increase fiscal redistribution.

### Conclusion and Fiscal Outlook
- Recent trajectory:
  - Pension spending increased markedly in recent years as pension increases were used to support households during the COVID-19 pandemic; those increases became permanent and improved adequacy.
- Fiscal risks:
  - Without sufficient revenue measures, additional spending presents fiscal risks: pension deficits risk crowding out productive spending needed to boost productivity and income convergence.
  - The pension system deficit is likely to increase in the medium term due to population aging.
- Historical policy trade-offs:
  - In the last decade, sustainability was supported by reductions in generosity (pension freeze in early 2010s and 2015 reform) with limited revenue measures, producing a system of low contribution and low benefit.
  - Given low adequacy and high pensioner poverty, further reductions in generosity appear infeasible.
- Restore sustainability:
  - Restoring fiscal sustainability requires changing the pension formula to increase revenue and incentivize formal contributions, increasing the link between benefits and paid contributions rather than reducing benefits.

*Source: sipea2024021 (IMF PDF chapter content).*

### 1. Various Population Projections _____________________________________________________ 11

### 1. Various Population Projections

### Overview of the Bulgarian Pension System
- System structure:
  - First pillar: mandatory, defined benefit, pay-as-you-go administered by the National Social Security Institute (NSSI); contribution rate of "14.8 percent" of gross insurable income for individuals born after 1959 and "19.8 percent" for individuals born in 1959 or before.
  - Second pillar: mandatory defined contribution for individuals born after 1959 with a contribution rate of "5 percent".
  - Third pillar: voluntary defined contribution managed by licensed private pension providers.
- Major reforms and outcomes:
  - Early 2010s: pension freeze implemented; indexation mechanism described in source.
  - 2015 reform (implemented starting in 2016):
    - Reduced pension spending by "1½ percent of GDP" between 2014 and 2019.
    - Gradual increase in retirement age: from "63 and 8 months" for men and "60 and 8 months" for women to age 65 in "2029 for men" and in "2037 for women".
    - Increase in required minimum contribution period by two months every year until reaching "40 years for men" and "37 years for women by 2027".
  - Coverage and adequacy trends:
    - Coverage ratio (pensioners as share of population 65+) continued to decline and projected to remain below EU average by 2040 (2021 Ageing Report).
    - Expected years in retirement declined faster than the EU average.
    - Generosity measured by pension support ratio and benefit ratio declined after the reform; increases in pensions lagged wage growth.

### COVID-19 Measures and Their Fiscal Impact
- Scale and composition of pandemic support:
  - More than half of fiscal support to households in 2020–21 targeted pensioners; this accounted for "over 1 percent of GDP in 2021".
  - Support primarily took the form of pension increases and ad-hoc supplementary payments (bonuses).
  - Some measures initially temporary were made permanent in 2022 and included in pension calculations.
- Effects on pension adequacy and spending:
  - Pandemic measures increased the generosity and adequacy of pensions; old-age poverty dropped markedly in 2023.
  - Pension spending reached a historical high in 2023; the medium-term budget framework (MTBF) expects pension spending to continue rising.
  - Example changes: widow's allowances increased from "26.5 percent to 30 percent" of deceased spouse's pension; NSSI estimates this raises pension payment by "0.7 percent" in 2023.
- Revenue-side developments and imbalance:
  - Contribution rates and maximum insurable income left unchanged during the pandemic.
  - Share of contributors benefiting from the cap on social contributions rose from "6.4 percent in 2019" to "14.2 percent in 2023".
  - Contributions at maximum social insurable income represent "over 21 percent of total contributions" (up from "13.6 percent in 2019").
  - Maximum pension as a share of maximum insurable income evolved as follows:
    - "35 percent" over 2009–19
    - "40 percent" in 2020
    - "48 percent" in 2021
    - "62 percent" in 2022
    - "100 percent" in 2023
    - The increase in 2024 will bring this ratio to "91 percent".
  - Share of pensioners receiving the maximum pension fell from "2 percent in 2020" to "0.1 percent in 2023".
  - Result: contributions increasingly capped while the cap on pensions effectively disappeared, limiting revenue containment and increasing spending.

### Distributional and Adequacy Outcomes
- Minimum and low-pension indicators:
  - Share of pensioners receiving the minimum pension increased from "27 percent in 2016" to "35 percent in 2019"; the share reached "46 percent in 2022 and 2023".
  - Minimum pension dropped from "57 percent of the minimum wage in 2010" to "38 percent in 2019" and remained below the poverty line.
- Poverty and income:
  - Elderly (65 and older) remained the age group suffering the most from poverty until 2022; at-risk-of-poverty rates and median equivalized net income show elderly incomes significantly lower than other age groups.
- System characterization:
  - Bulgaria described as a low contribution–low benefit system; on the eve of the pandemic pension spending was "more than 5 percent of GDP lower than EU average".

### Fiscal Sustainability and Transfers
- Fiscal mechanics:
  - By law, the pension system deficit is financed by transfers from the state; the system is not allowed to carry debt independently.
- Recent fiscal impact:
  - Transfers from the state to cover pension deficits increased by "2.3 percentage points of GDP between 2019 and 2023" and are expected to further increase in the coming years.
  - The share of pension payments financed by social contributions fell back to its 2015 level in 2023; MTBF expects only a limited recovery.
- Risk implications:
  - Rising transfers weigh on the general government fiscal balance and may crowd out other spending or increase public debt.

### Policy Implications and Reform Priorities
- Trade-offs observed:
  - Past reforms that improved sustainability (2015) tended to reduce pension adequacy and increased the share of pensioners on minimum pensions.
  - Pandemic-era measures improved adequacy but widened structural deficits because they were not matched by revenue measures.
- Recommended focus (as argued in the source):
  - Given continued low pensions and widespread pensioner poverty, there is little scope to reduce generosity.
  - Reforms should instead aim to increase incentives to contribute to the pension system to raise revenue and improve financial sustainability, thereby reducing fiscal risks.
- Instrument considerations illustrated by recent history:
  - Adjusting the maximum insurable income (cap on contributions) and recalibrating the link between maximum insurable income and maximum pension could restore revenue balance.
  - Avoid permanent increases in benefit generosity without commensurate revenue measures, given the legal requirement for state transfers to cover deficits.

*Source: International Monetary Fund, sipea2024021 (May 10, 2024), "THE BULGARIAN PENSION SYSTEM: CAUGHT BETWEEN ADEQUACY AND SUSTAINABILITY".*

### 15.      Low contingent liabilities mitigate fiscal risks in the medium-term. In part due to low

### 15.      Low contingent liabilities mitigate fiscal risks in the medium-term. In part due to low

### Overview and key fiscal context
- Present value of pensions to be paid in the future based on accrued rights are among the lowest in Europe.
- Accrued pension rights are overwhelmingly related to the pay-as-you-go system as the share of the private pension schemes accounted for less than 7 percent of accumulated entitlements in 2018.
- Accrued pension entitlements rose from 168 percent of GDP in 2015 to 186 percent of GDP in 2016 before declining to 178 percent in 2018.
- Pension-related fiscal transfers have jumped to over 5½ percent of GDP and are expected to remain at this level in the coming years.

### Demographics and projections
- Since 2005, the Bulgarian population has been shrinking due to a sharp decline in population below 65, while the population at retirement age (65 and older) increased.
- Population projection sources discussed:
  - EUROPOP 2019: projections for 2019–2100 underpinning the 2021 Ageing Report (covers 2019–70).
  - EUROPOP 2023: projections for 2022–2100 to underpin the forthcoming 2024 Ageing Report.
  - NSI (National Statistical Institute) 2023: recalculated population estimates and updated projections until 2090 incorporating census results.
- Table 4 (population growth, annual average in percent) excerpts:
  - 2005-2022 total: -0.7
  - Europop 2019 total (2022-70 projection): -0.6
  - Europop 2023 total (2022-70 projection): -0.5
  - NSI total (2022-70 projection): -0.6
  - 2005-2022 <65: -1.0
  - Europop 2019 <65 (2022-70): -0.9
  - Europop 2023 <65 (2022-70): -0.8
  - NSI <65 (2022-70): -0.7
  - 2005-2022 65+: 0.6
  - Europop 2019 65+ (2022-70): 0.3
  - Europop 2023 65+ (2022-70): 0.2
  - NSI 65+ (2022-70): -0.3
- Old-age dependency (65+/20–64) is projected to increase markedly in the coming three decades before declining according to Europop and national projections.
- The 2021 Ageing Report shows old-age dependency will be the main driver of the projected increase in the public-pension-to-GDP ratio in the long run.

### Pension spending projections and recent developments
- The 2021 Ageing Report’s projected increase in pension spending appears underestimated in light of recent measures and actual spending: actual spending for 2019 was slightly overestimated in the Ageing Report, but actual spending already exceeds the projected peak.
- Europop 2023 revisions do not suggest substantial demographic changes relative to previous projections, implying the 2021 Ageing Report now appears to significantly underestimate pension spending in the coming decades, though it still indicates long-term spending pressure.

### Proportionality measure and incentives to contribute
- Proportionality measure (PM) definition:
  - PM = Present Value of Benefits ∕ Present Value of Contributions
- A sustainable, actuarially fair pay-as-you-go system without debt implies PM = 1.
- Bulgaria’s PM is significantly above 1, higher for younger cohorts than older cohorts, and higher than EU or Newer Member States (NMS) peers. Example statement: a person born in 2000 can expect a pension about twice larger than his/her contribution based on calculations using the 2021 Ageing Report.
- The current old-age benefit formula:
  - B = AII × IC × IP × AR
    - B is the pension benefit
    - AII is the national monthly average insurable income for 12 months preceding retirement
    - IC is the ratio between the average insurable income of the person and the average insurable income for the country in the periods of insurance (average of the monthly ratios calculated after 1999)
    - IP is the insurance period (contributory and non-contributory periods)
    - AR is the accrual rate
- Because benefits are based on length of contribution period and insurable income rather than on contributions actually paid, the formula provides individuals little incentive to contribute. This contributes to widespread underreporting of wages and informal work.
- Consequences:
  - Contributions-to-GDP ratio is low by EU standards.
  - Only about half of the working age population contributes to the mandatory pension system, while employment rate of working age population slightly exceeds 70 percent.
  - 46 percent of pensioners received minimum pension in 2023, reflecting large share receiving minimum pension.
  - Over 21 percent of contributions are now capped (benefiting 14 percent of contributors).
  - Maximum pensions account for less than 0.5 percent of pension payments and 0.1 percent of pensioners.

### Policy recommendations to improve sustainability and fairness
- Avoid further reductions in pension generosity as the primary adjustment instrument because:
  - It is undesirable socially given low adequacy and high old-age poverty.
  - It is unlikely to be politically sustainable amid demographic pressures.
  - It may increase incentives for contribution avoidance, undermining revenue from social contributions and personal income tax.
- Focus policy on increasing incentives to contribute and strengthening revenue:
  - Revise the benefit formula to incorporate contributions actually paid, increasing perceived value of contributions and incentives to contribute.
  - Strengthening the link between benefits and paid contributions would increase pension system revenue and personal income tax revenue through better reporting of wages.
  - With strengthened finances, reduce fiscal transfers and create fiscal space for more productive spending.
  - Consider increasing the contribution rate (currently among the lowest in the EU) and eliminating the cap on social contributions (maximum insurable income) in combination with elimination of maximum pension to broaden the revenue base (noting over 21 percent of contributions currently capped, benefiting 14 percent of contributors).
  - Meanwhile, link the maximum social insurance income to wage growth to reverse recent sharp increases in the share of contributors benefiting from the cap and increase revenue.
- Expected distributional and fiscal effects:
  - Eliminating the maximum pension and cap on insurable income would further increase incentives to contribute and pension system revenue, and strengthen the role of social contributions in reducing high- and rising-income inequality.
  - From a general government fiscal perspective, increasing the maximum insurable income would be partly eroded by increases in spending programs linked to its level, which may improve social protection coverage and further increase fiscal redistribution.

### Conclusion and fiscal outlook
- Pension spending increased markedly in recent years as pension increases were used to support households during the COVID-19 pandemic; those increases became permanent and improved adequacy.
- Without sufficient revenue measures, additional spending presents fiscal risks: pension deficits risk crowding out productive spending needed to boost productivity and income convergence.
- The pension system deficit is likely to increase in the medium term due to population aging.
- In the last decade, sustainability was supported by reductions in generosity (pension freeze in early 2010s and 2015 reform) with limited revenue measures, producing a system of low contribution and low benefit.
- Given low adequacy and high pensioner poverty, further reductions in generosity appear infeasible.
- Restoring fiscal sustainability requires changing the pension formula to increase revenue and incentivize formal contributions, increasing the link between benefits and paid contributions rather than reducing benefits.

*Source: sipea2024021 (IMF PDF chapter content).*

---


_Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2024/english/sipea2024021.pdf_