Bulgaria

MAKING SOCIAL SECURITY A CONSTITUTIONAL RIGHT

Prof. Plamenka Markova

Emergence of social security rights in the Bulgarian constitutions

Bulgaria is one of the European countries that have included the right to social security in its constitution in the middle of the 20^th century. In the period 1945-2014 three constitutions have been adopted- in 1947; in 1971 and in 19991.

Art 75   of the 1947 Constitution provided the right to pensions, allowances and benefits in case of sickness, injury, disability, unemployment and old age. This right was implemented by general insurance and affordable medical care. The National Assembly was assigned the function of monitoring and solving issues related to the constitutionality of the laws and other legislative acts, i.e. the role of a constitutional court, which did not exist under its provisions.

The 1971 Constitution proclaimed an extensive catalogue of the social and political rights and freedoms of citizens. What is more, this catalogue did not differ considerably from that of the democratic constitutions of old democracies. Fundamental social rights played an important role in the socialist theory of constitutional law and were regarded as the main element of individual rights and freedoms. [1]

Article 43 envisaged the same risks as in art. 75 of the 1947 Constitution and had added pregnancy, maternity, raising a small child and death. Art 44 of the 1971 Constitution guaranteed special protection to some vulnerable groups as minors and adolescents, disabled and elderly people without immediate family who are unable to support themselves on the property thereof. Art 47 dealt with medical care. No doubt this influence goes back not only to the Constitution of the Soviet Union, but to the relevant international instruments at the time - the   ILO social security conventions[2], the Universal Declaration of Human Rights of 1948 and the International Covenant on Economic, Social and Cultural Rights of 1966.

The Bulgarian Constitution, effective as from July 12, 1991 was the first democratic Constitution passed in Eastern Europe following the radical political and economic changes in the socialist system of 1989. It provides a detailed catalogue of fundamental rights and obligations of citizens. Thus it affiliates Bulgaria to international law requirements on human rights. The present Constitution in Article 51 provides that citizens shall have the right to social security and social assistance and in Article 52 provides the right to health through health insurance.[3]

The constitutional right to social security is rich in content. It includes many different and specific social security rights-compensations, benefits, and pensions for temporary incapacity to work; maternity; temporary reduced ability to work (reassignment); unemployment; invalidity; old age; death. Actually, it includes the right to social  insurance and social assistance although in Bulgarian legal theory these are two separate rights.[4] The social assistance, as defined in the national legislation, covers benefits in cash or in kind, which supplement or replaces income up to the basic living needs or satisfies an incidental need of the supported persons and families. The scope of social protection in Bulgaria includes both the classic contribution based social insurance, non-contributory social security schemes and social assistance, including the system of social services. It contains targeted programmes for social assistance and care, creating employment for disadvantaged groups, family allowances for children, etc. (The non-contributory social security schemes and the social assistance scheme are financed by the state budget. A set of criteria, including means tests, is applied to these schemes in order to assess entitlement. The social insurance schemes are financed through special budgets of the social insurance funds.)

The unemployment insurance in para 2 of art.51 is part of the general right to social security. The special attention given to it is due to its relevance for the period when the  1991 Constitution was adopted. The right to social security is defined as individual, fundamental social right. This characterization means that it is inalienable[5]  and may be restricted only in exceptional cases according to art. 57 para 2 and 3 of the Constitution.

The individual right to social security is based on the principle of the social/welfare state (indent 5 of the Preamble of the Constitution embrace the principle of the “social State[6]) and on the two cited articles - 51 and 52 of the Constitution.  Several decisions of the Constitutional court[7] must be considered and added to these articles and they all together form the constitutional block that expresses the trend of the constitutionalization of the right to social security.

The provision of Article 51, para 1 of the Constitution enshrines a fundamental right of citizens the right to social security and social assistance, without having specified  the order, the principles and the system for its implementation and practical application.  The state shall ensure the realization of this right as this stems from the declared "welfare state." It must take and perform the necessary actions to create a regulatory system for social security. When comparing para 1 and 2 of art 51 the lack of an express indication that the right to social security is regulated by law cannot be overlooked. The importance of the right to social security, the wealth of specific social security components, through which it is applied, and the traditions of its legal framework require an explicit indication of the relevant legislation. Since the legislative act must address major public relations concerning the application of the enshrined by the Constitution fundamental right of citizens, there can be no doubt that this enactment should be a law. Therefore, the legislature shall be competent to create the legal framework for social security system in order to provide a real opportunity for citizens to benefit from the right envisaged in art 51. Otherwise, this constitutional provision would remain an unenforceable declaration. The legislature shall consider appropriate, what social security system to accept, based on what principles it should be conducted in accordance with constitutional norms (to that effect Decision of the C Court  ¿ 12 of September 25, 1997 on cc ¿ 6 / '97 . - SG, No. 89 of 7 October 1997 and Decision ¿ 21 of 15 July 1998 on cc ¿ 18/97 - SG, No. 83 of 21 July 1998). Thus the Constitution becomes not only a source, but also a firm foundation of national law on social security, implying a new distribution of responsibilities between the executive, the legislative and the judicial authorities.

Constitutional guarantees control the generation of new norms or amendments to the existing legislation (to that effect Interpretative Decision No 7 of May 31, 2011 of the Constitutional court on cc 21/2010)[8] and influence the organization of public services. An example could be given by Article 84 of the Constitution according to which the National Assembly shall …”17. (new, SG No. 12/2007) hear and adopt reports on the operation of any bodies which are elected in whole or in part by the National Assembly, where this is provided for by statute.” The Social Security Code provides that the Governor of the National Social Security Institute is elected for four years term of office by the National Assembly.

What is new in the 1991 Constitution is the provided basis for the protection of rights through institutional mechanisms, and primarily through the Constitutional court, the Supreme courts and the Ombudsman, who advocates the rights and freedoms of citizens. The powers and activities of the Ombudsman are regulated by statute.[9] .

Another characteristic feature of the Constitution is its “direct force” in revoking provisions of existing laws contravening the Constitution. This direct force (Article 5 , para 1 and 2) of the constitutional provisions makes possible their direct implementation and supremacy over all other provisions with the respective legal consequences. Proceeding from this, any citizen or juridical person can efficiently defend his rights and interests. Such direct force is characteristic of constitutional provisions regulating the constitutional law status of Bulgarian citizens, their rights and obligations and the provisions regulating the structure, composition, mandate, prerogatives and interrelations of the state bodies. Within the framework of constitutional control the Constitution makes it possible for the Supreme Court of Cassation or the Supreme Administrative Court to stop the trial of cases upon establishing contradictions between the law and the Constitution by officially referring these cases to the Constitutional Court. The direct force of the Constitution also finds expression in explicit texts in the Constitution providing for the passage of new laws.

The constitutional rights to social security and to health are defined as social right on the basis of its objective to protect the existence of the individual when falling into material difficulty and needs the support of the community. As a social right it falls into the category of the so called positive[10] or participation rights-Teilhaberechte or Droits exigencies.

The detailed regulation of the social security right is in the Social Security Code and in the  Law on Health Insurance. The compulsory health insurance, as well as the healthcare financed by the budget, provide a basic package of healthcare activities, financed either by the budget of the National Health Insurance Fund or by the state budget depending on the scheme. Compulsory health insurance shall guarantee to the insured persons free access to medical care by means of a package of health-care activities of a specific type, scope and amount, as well as the free choice of a care provider, who or which has concluded a contract with a Regional Health Insurance Fund. The right of choice shall apply to the entire territory of Bulgaria and may not be restricted on geographic and/or administrative grounds.

Scope of application of the constitutional guarantees

The scope of application of constitutional guarantees relating to social security covers only Bulgarian citizens. Other EU nationals are not foreigners within the meaning of the Bulgarian legislation, EU nationals have the same rights and obligations as Bulgarian nationals on the basis of Treaty on the Functioning of the European Union.[11] Foreigners with permanent or long-term residence in Bulgaria have any and all rights and obligations under the laws of Bulgaria and all ratified international treaties to which the Republic of Bulgaria is a signatory, excepting those rights and obligations expressly requiring Bulgarian citizenship. The special protection that Bulgaria provides to aliens under the Asylum and Refugees Act includes asylum, refugee status, humanitarian status and temporary protection.

The following persons are subject to the compulsory health insurance system:

1. all Bulgarian citizens who are not also citizens of another country;

2. Bulgarian citizens who are also citizens of another country and permanently reside on the territory of the Republic of Bulgaria;

3. foreign citizens or persons without citizenship who have permission to stay permanently or long-term on the territory of the Republic of Bulgaria, unless otherwise stipulated by an international agreement to which the Republic of Bulgaria is a party;

4. persons with a status of refugee, humanitarian status or who have been granted the right to asylum.

5. foreign students and doctoral students admitted to universities or science organizations in the country by the order of the Decree of the Council of Ministers No. 103 of 1993 for the Implementation of Educational Activities Among the Bulgarians Abroad and Decree of the Council of Ministers No. 228 of 1997 for Admittance of citizens of the Republic of Macedonia in the state universities of the Republic of Bulgaria;

6. persons, who fall outside of the scope of the ones referred to in items 1 through 5, with regards to whom the legislation of the Republic of Bulgaria is applied in compliance with the rules for coordination of the social security schemes.

 

Persons who are subject to health insurance in another Member State shall not be obligatorily insured by the National Health Insurance Fund, according to the rules for coordination of the social security schemes.

According to Bulgarian law, child benefit is available for:

• Pregnant women who are Bulgarian citizens and families of Bulgarian citizens that raise their child in Bulgaria
• Families in which one of the parents is a Bulgarian citizen for their children with Bulgarian citizenship, living in Bulgaria
• Pregnant women who are foreign citizens and families of foreign citizens who have permanent residence and raise their children in Bulgaria

In Bulgaria, social assistance is provided by the state. Eligibility for monthly child benefit depends on family income. The benefit is paid until the child finishes secondary education (maximum age 20).

Provisions attributing international treaties authority equal or superior to national law

The present Bulgarian Constitution is based on the modern principle of interrelation between national and international law. This is evidenced by its unique stipulation in Art.5 para 4 that “international instruments which have been ratified by the constitutionally established procedure, promulgated and come into force with respect to the Republic of Bulgaria, shall be considered part of the domestic legislation of the country and supersede any domestic legislation stipulating otherwise.” These international instruments become domestic law norms, are incorporated in the Bulgarian legal system and are applied directly in the presence of the above-mentioned conditions. This is controlled by the Constitutional Court which is authorized to rule on the conformity of the laws with universally recognized norms of international law and with international instruments to which Bulgaria is a party.

The previous Bulgarian Constitution treated the interrelation between domestic and international law mainly on the basis of the so-called “realistic dualism”. This principle does not allow for supremacy of the one law over the other and the implementation of international law is guaranteed through its transformation into domestic norms.

The role of the constitutional court in defining the right to social security

The Constitutional Court is a public authority, a body of State power, whose basic function

is to exercise review over the constitutionality of laws. According to Constitution it ensures its supremacy. Actually, the legal regulation of this institution in Bulgaria largely follows the model, which became current in Europe under the influence of H. Kelsen. The Constitutional Court is a part of the public institution’s system – its competence stems directly from the Constitution, which specifies its powers. More specifically, it is equal to the supreme bodies of the three Powers, but it does not interfere with their activity. As a public authority the Constitutional Court has its main functions – to review the constitutionality of laws and to give binding interpretation of Constitution.

It is, therefore, directly related to legislation, but it is not a legislator itself. According to the

Constitution legislative power in the Republic of Bulgaria is exercised by the National Assembly. In other words, Parliament is sole legislator. In Bulgarian legal theory, some authors try to avoid the formula of the Constitution that the National Assembly is sole legislator and adopt the compromising stance that the activity of the Constitutional Court is not legislative, but identical to rule-creation. Apparently they are, likewise, not inclined to regard constitutional review as “negative legislation”, and give review and the concept of “legislator” a meaning different from the meanings which refer to the competence of the National Assembly.

The Constitutional Court accepted that, although it is called “court”, it is not a body which

administers justice, nor is it part of the judiciary. The main argument is that the Constitution itself takes the Constitutional Court out of the system of the judiciary by means of regulating its functions in a separate chapter. That assumption has been criticized in legal literature on the grounds that the Court is a body of the judiciary, because it considers legal disputes and thus administers justice.

Indeed, when the Court reviews constitutionality of laws, its activity looks like a judicial

administration of justice, but its very essence makes it different from ordinary justice – as far as constitutional review is concerned the Constitutional Court does not rule on a specific legal dispute, as ordinary courts do. But beyond constitutional review, the Constitution gives the Court other powers and these are related to the ruling of legal disputes.

According to the Constitution, the laws, which have been declared unconstitutional, are not to be applied as from the day on which the Court’s decision comes into force. This phrasing gives rise to different reactions in Bulgarian legal doctrine. According to one set of opinions, the Constitution explicitly proclaims that an unconstitutional law is also non-applicable. Non-applicability has the meaning of postponement. The formulation has its logic in the role and status of the Constitutional Court – it does not share the legislative power of the National Assembly. In this sense, it would be unjustified to define the Constitutional Court as a “negative legislator”. The main problem of this argument, however, is that it leaves open the issue concerning the legal effect of the declaration of the unconstitutionality of a law.

According to the other set of views, the meaning of the Constitution is that the law, which has been declared unconstitutional, ceases to be a normative regulator, loses its effect and is therefore practically repealed. Decision 22/95 on c.c. 25/95 of the Constitutional Court accepted that the coming into force of the decision, declaring a law unconstitutional, annuls the law on the strength of the decision and its constitutive effect. Annulment of a law is equal to its abrogation by the National Assembly. With this decision, the Constitutional Court actually reinforced the argument about its being a “negative legislator”, i.e. the annulment of the law ex nunc due to its unconstitutionality functions as abrogation of a law by another law.

Decision  22/95 on c.c.  25/95 made another significant step forward. According to it, when the Constitutional Court declares a law unconstitutional, and this in turn abrogates or modifies an existing law, the latter restores its effect in the phrasing prior to the abrogation or modification from the moment the Court’s decision comes into force. The Constitutional Court argument is that, unless such a “resurrection” of the abrogated law is allowed, an unacceptable legislative gap will emerge. In this par the Decision makes a substantial contribution with regard to the modification of the formulation about the Court’s legal status. With its acceptance the Constitutional Court actually claims that, as long as it not only repeals the law, which has been declared unconstitutional, but also restores the preceding law, it is actually closer to the position of a “positive legislator”.

The Constitutional Court of Bulgaria has a power, which is rarely seen in the normative regulation of constitutional justice. It can give binding interpretations of the Constitution. This is a separate power and comes first among the prerogatives of the Constitutional Court. The interpretation of the Constitutional Court is official, i.e. binding and abstract. In Ruling 4/04 on c.c. 9/07 the Court rejects the possibility that the interpretation of the Constitution transforms it into a “positive legislator”; the power to interpret should not be used to seek and achieve circumvention of constitutionally established powers. This Ruling expresses a trend in the recent jurisprudence of the Court – its unwillingness, when interpreting the Constitution, to be a “positive legislator”. This position is justified through the argument that only the National Assembly can legislate and that the Constitutional Court should not “substitute” it in its function. As for the meaning of Constitutional Court power to interpret the Constitution, it aims at clarifying the sense of constitutional provisions, the connections between them and other provisions, as well as the principles of the Constitution. Of course, in a number of instances the Court’s interpretation of a constitutional text did add much more to the normative sense of the Constitution than to its clarification. From this point of view, the Constitutional Court turns into a legislator and its interpretative decisions have the nature of sources of law, or, more specifically, subsidiary sources of law.

In Bulgarian legal theory opinions divide as to whether the decisions of the Constitutional Court concerning the interpretation of the Constitution, are sources of law and further on, whether the Constitutional Court becomes a “positive legislator” through such decision making. Still, scholars are unanimous that the power of the Court to interpret the Constitution is essential and that this power has important consequences, thus suggesting that it should be exercised cautiously and reasonably. Legal theory sustains that the interpretative power of the Constitutional Court includes the filling in of gaps in the constitutional regulation.

According to the Constitution of the Republic of Bulgaria, the Constitutional Court does not act ex officio, it cannot take the initiative to rule on the constitutionality of a law. The Constitutional Court can be seized a restrictively foreseen by the Constitution public institutions and certain number (group) of Members of Parliament: one fifth of the Members of Parliament, i.e. 48 of them, the President, the Council of Ministers, the Supreme Cassation Court, the Supreme Administrative Court, the Prosecutor General and the Ombudsman. Besides the Ombudsman can approach the Constitutional Court for declaring unconstitutionality only of a law which infringes human rights and freedoms.

The Constitutional Court accepted that it can be approached by the plenums of the Supreme Cassation and the Supreme Administrative Court, comprising all magistrates, as well as by the general assemblies of their colleges. When single panels of the Supreme Cassation or the Supreme Administrative Court find out, while hearing a dispute, inconsistency between a law and the Constitution, they suspend proceedings and submit the issue to the Constitutional Court. Their reason for approaching the Constitutional Court here is a concrete one, but the review the Court will exercise, is still abstract. The Constitution of the Republic of Bulgaria does not allow for individual constitutional complaints by persons before the Constitutional Court on an unconstitutional law. This can be done through one of the institutions, listed above, i.e. by proxy. In practice, the initiative will most often be taken by the Ombudsman or the single panels of Supreme Cassation Court or Supreme Administrative Court.

 As in the other European states, the Bulgarian Constitutional Court is called to ensure the supremacy of the Constitution over the laws and bylaws that Parliament passes and over the presidential decrees. The Constitutional Court decisions are final (i.e. cannot be challenged) and binding on all, courts included. They are binding by the interpretation of the Constitution by the Constitutional Court's interpretative decisions and also by its other decisions. The Constitutional Court control covers not only the laws passed after the adoption of the Constitution but also the laws passed before the adoption of the Constitution (so-called existing legislation). The Constitutional Court cannot revoke decisions of the Supreme Court of Cassation and of the Supreme Administrative Court if they contravene the Constitution. It is not the fourth instance above them.

The Constitutional court did not attempt any activism in defining and protecting social security rights in transition to the market economy and against the austerity measures provoked by the economic crisis. In certain cases the Court hesitated between the principle of the social state and the protection of the private property, reflecting the abandonment of the socialist law doctrine.

Some of the decisions are controversial and dissenting opinions are stated by judges. A good example is the Decision 5 of 29 June 2000 on cc 4/2000, a part of which deals with the issue of the complementary nature of compulsory supplementary pensions insurance. The decision accepted that the second pillar complies with art. 51, but several judges dissented and argued that it did not fit in the implementation of the social function of the state. They insisted that the social minimum is guaranteed by the state social insurance (the state is obliged to create conditions for its provision). Persons wishing to receive higher pensions than this minimum, have the opportunities provided by the voluntary pension insurance. Legislative imposition of a second, supplementary mandatory pension insurance cannot be justified either by the right under Art. 51, para.1 of the Constitution nor by the social character of the state. The regulation of the supplementary mandatory pension insurance creates a legal mutant that does not fit in the normal legal and language categories ("language is the natural environment of the law"). For example, all reference to compulsory insurance (arranged on the principle of mandatory participation - art. 125, para. 1, item 1 SSC) contradicts to the rule that it is based on a contract between the insured person and the licensed pension insurance company - art. 124 SSC. The basis of contractual freedom, however, is the freedom to enter or not to enter into a contract, but in this case, the insured persons are deprived of this freedom. The apparent contradiction is not only in the language but in the very essence of the institute. It recognizes the right of the state to impose on its citizens, additional social security obligations than the necessary social minimum, through which their duty can be justified. At the same time absurdly the state is authorized to decree the appearance of "private" relationship between the insured and private funds. Since there is no clear criterion for cases in which the state can do this   a possibility appears of increasing the "care", e.g. by introducing of additional compulsory insurance for other risks. The Court did not indicate a reasonable constitutional ground for introducing this additional duty for social insurance.

The Constitutional Court of Bulgaria in another case decided that the more restrictive rules on health insurance introduced by the National Health Insurance Fund Act were not in breach of the Constitution. According to the Court, unlike basic civil rights, social rights are neither universal nor directly justiciable and can therefore be restricted by the Government. “Far-reaching decisions on constitutional entitlements to social rights that are not implemented can easily damage the authority of the courts.[12]

Threats to social security rights in times of economic crisis

In the course of the 1990s, it became clear that the old-age security system inherited from the socialist past was in dire need of reform, to secure its financial sustainability, to meet the demographic challenges ahead and to adapt some of the previous design features to the new economic order. When welfare and distribution issues started to attract greater attention after the  major crisis in 1996-1997 in Bulgaria, it turned out that the scope and type of reforms needed in the field of social policy were highly disputed. This has been especially true in the area of old-age security. Pension reform seemed inevitable in Bulgaria, as the process of economic transformation was putting great strain on the existing retirement system. The discussions with some international donors (the World Bank and the USDOL) reflected the international controversy between the “new pension orthodoxy”[13] and its opponents, triggered by forecasts of population ageing and a wave of pension privatisations in Latin America. This debate focused on the question whether it is sufficient to adapt the existing public pay-as-you-go (PAYG) system, or whether private, individually fully funded (IFF) pension schemes, such as the one in Chile, are a more appropriate solution to short- and long-run problems facing old-age security.

A first change in the public private mix was brought about by introducing supplementary private IFF schemes Since a major reform of the pension system in 2000, the reformed scheme is based on a three-pillar model. It combines an unfunded component (first pillar) managed by the National Social Security Institute, with an occupational funded scheme and universal pension scheme (second pillar) and voluntary retirement saving funds (third pillar).

Participation to the second pillar is compulsory for individuals born after 1959, while workers born before this date receive their pension only from the first pillar and (in a few cases) from the voluntary pillar. The PAYG system is financed through budget transfers and social contributions. The latter are paid by workers and employers (respectively 45 % and 55 %). Contributions are collected, along with other revenues, by the National Revenue Agency. For incomes above the maximum wage ceiling, no contribution is due. The state budget transfers to the NSSI each year an additional 12 % of the insurable wage bill to cover pension expenditures not related to social insurance  and the gap between contributions and (social insurance) pensions.

First-pillar pensions are related to earnings. Old-age benefits are calculated according to a formula which reflects the length of service, lifetime income (for the share earned after 1996) and an accrual rate of 1.1 percent per year of service. Pensions paid to workers insured under the second pillar are adjusted in proportion to the lower contribution rate paid to the NSSI. Survival pensions and disability benefits are also provided to the insured population under the unfunded scheme.

The retirement age is set at 65 years for both men and women with at least 15 years of contributions. However, as a result of a generous system to assess the length of service that includes non-contributory years (e.g., military services, maternity leave, unemployment periods, pre-1989 gaps in contributions) only a small share of pensioners get their old-age benefit at this age and earlier retirement is common. Old-age benefits for these workers cannot be lower than a minimum pension of about BGN 130 (approximately 65 Euro) per month. Since 2006, this is linked to the pension level that would have accrued on the basis of the point system. For pensioners with 15 years of contributions or less, the minimum benefit is 85 percent of the minimum pension above.

Selected categories are covered by special pension regimes. These include:

- Type-I workers: miners, pilots, steel workers, workers in chemical plants and other at-risk workers who benefit from an earlier retirement age (typically 52 years for men and 47 years for women) and a more generous system to assess the length of service for the benefit calculation (e.g., three years of contributions are accrued for each year of work for miners and five years of contributions for each three years of work for other special categories).

- Type-II workers and special categories: including military forces, police, and other special enforcement agency workers can retire with 25 years of service and no age limit. Benefit indexation was based on the “golden Swiss” rule. Benefits were indexed to a combination of price and nominal wage growth (with equal weights for each component). In the past, ad hoc adjustments to benefits beyond this formula have been frequent. Minimum and social pensions are also adjusted in line with price inflation and nominal wage growth.

The second pillar is based on a defined-contribution scheme. Since 2003, workers born after 1959 pay a contribution rate (now 5 percent out of the 16 percent contribution rate for pensions) to the funded pension system. This is paid almost in equal parts by employers and employees and in full by self-employed. Contributions are accumulated into individual accounts managed by pension insurance companies, which are joint stock companies that are separate legal entities from the public pension funds supervised by the Financial Supervision Commission. The mandatory second pillar covers old age and survivor risks. It provides pensions at the statutory age of 63 years (for men) and 60 years (for women) and earlier retirement pensions five years before the statutory age. Benefits are expected to cover between 10 percent and 15 percent of wages for individuals with full working histories. For at-risk workers and other special categories the mandatory funded pillar also covers early retirement costs. A separate funded scheme under the second pillar of the pension system covers workers in special occupations. The scheme is based on a defined contribution system and pays early retirement benefits (or the equivalent lump-sum payment for small pensions) up to the normal retirement age to workers in hazardous conditions. The PPF system is financed by social contributions ranging between 10 percent and 15 percent (of which 3 percentage points are paid to the NSSI) depending on the work category paid exclusively by the employer. After a delay in the implementation of this reform in 2009, PPFs were expected to provide early retirement pensions since January 2011, while the NSSI would stop paying new benefits. However, the implementation of this reform has been suspended and moved to 2012, pending discussions on a burden-sharing agreement between the NSSI and PPFs to cover the cost of these pensions.

The third pillar of the pension system comprises a voluntary defined-contribution scheme. This covers voluntary individual pension funds operating since 1994 and occupational funds for voluntary group policies operating since 2007. Tax incentives are provided to participants in these voluntary funds; voluntary contributions are exempt from income tax up to 10 percent of wage for employee and BGN 60 per month for the employer. Investment income and retirement benefits are also tax exempt. Benefits can be in the form of lump-sum payments or annuities and include survivor and disability pensions. The pension reform reflected the crisis in Bulgaria (1996-1997) that led to introducing a currency board arrangement still in force.

The recent crisis, however, led to a sharp deterioration in public finances. The sudden stop of the capital-inflow boom in 2008 led to a sharp economic downturn in Bulgaria. Notwithstanding decisive corrective actions to limit spending  (including a wage and pension freeze in the second half of 2009 and in 2010-2013), the decline in domestic demand led to a revenue collapse in the budget.

The pay-as-you-go pension system is a major source of fiscal pressure. Social security revenue declined sharply during the crisis, reflecting the fall in income and rising unemployment. At the same time, significant cuts in social contribution rates (introduced under the pressure of the employers’ organizations) and ad hoc benefit increases created a large imbalance in pension accounts. Until 2008, budget transfers to close the gap between pensions and contributions had averaged about 3 percent of GDP per year. However, measures adopted in recent years heightened financial pressures on the unfunded component of the social security system. This has led to a large imbalance that is financed through state budget transfers.

Demographic trends are expected to complicate fiscal management. Bulgaria is one of the fastest-aging economies in the EU according to the 2009 Ageing Report (European Union, 2009), owing to falling birth rate and rising life expectancy. The old-age dependency ratio will increase rapidly in the next decades reflecting the projected doubling in the share of elderly in the total population and an even more marked decline in the share of the working- age population. These trends would adversely affect the financial stability of the pension system and make budget transfers to cover deficits a risk to macroeconomic stability.

Impact on the investment of private pension funds. Privately managed pension funds have been adversely affected by the decline in the stock market and in some years have recorded negative rates of return.

In the period 2010-2014, a gradual pension reform package was approved by Parliament and the amended several times due to change of government. The reform envisaged that contribution rates would be increased by 1.8 percentage points from 2011 while a pension freeze will remain in next years’ budgets. The reform would also gradually raise the minimum contribution period for a full pension from 37 years to 40 years for men (with 63 years of age) and from 34 years to 37 years for women (with 60 years of age) over a decade. The retirement age is planned to be gradually raised (by six months per year) to reach 65 years for men and 63 years for women over the next two decades.

The crisis affected different types of pension schemes in different ways. Furthermore, the effects of the crisis were felt differently by the different generations. The most affected are the workers who are close to retirement, those with long periods of membership in the funded pension schemes and in particular those whose investment portfolio is heavily exposed to riskier assets as stocks.

The gap in financing for the pension system is creating trade-offs with other policy targets of the Government, notably to lower the tax burden. Such budget priorities may affect other areas such as family benefits, healthcare, and education, and deepen the social exclusion of some groups of people.

The economic crisis increased the need for social assistance of low income Bulgarian households. The global crisis has also affected remittances from Bulgarians working abroad. In recent years, the government has tightened the eligibility conditions for the social assistance benefits in order to let the beneficiaries see a job more actively.

Unemployment has remained high - 13% for the first quarter of 2014. There was a substantial increase in the unemployment benefit which was meant to respond to the crisis as an automatic stabilizer of the Bulgarian economy. In addition to the high demand for benefits, the contribution income of the unemployment insurance was reduced due to the reduced number of insured persons and the reduction of the contribution rate. As a result of the combined effects of these measures the unemployment insurance fund is in deficit.

Assessment of the future of social security rights in light of the Constitution

The social security system has been constantly under pressure since the reform in 2000 and did not follow strictly the initial version due to political reasons. As already pointed the pension system will have to adjust to adverse demographic developments. Dependency rates are expected to increase significantly over the coming decades. According to the World Bank [14], the old-age dependency rate, which is defined as the number of elderly (above the age of 65) per 100 working-age persons, is estimated to double from 25 percent in 2011 to 51 percent in 2075. Moreover, the system dependency rate, defined as the number of beneficiaries relative to the number of contributors, will increase from 75 elderly or disabled persons per 100 contributors to 109 beneficiaries per 100 contributors by 2050. Moreover, the pension system has pledged gross replacement rates of roughly 47 percent of average wages, which are similar to replacement ratios in countries experiencing more favourable demographics and with significantly higher pension contribution rates.

Recent changes, which reverse a number of recent pension reforms, worsen pension sustainability. From July 2014, automatic indexation will be implemented again based on the “golden Swiss rule” that links pension increases to the average growth of insurable income and CPI inflation. This is an important change to previous plans, which implied an indexation to CPI only. In addition, the gradual increase in the retirement age, part of the 2011 pension reform and started in 2012 (to reach 65 years for men by 2017 and 63 years for women by 2020), has been halted. Thus, the pension deficit by 2040 is now projected to be near 6 percent of GDP instead of 4 percent of GDP. The deficit is financed by the budget and crowds out other spending, which is increasingly coming under pressure as the population ages. Compensatory measures are needed to limit budgetary pressures.

Further reform options in the pension system (besides returning to the 2011/2011 reform decisions) include limiting early retirement, enhancing control over the invalidity pensions and increasing the retirement age of women to that of men, which would help boost labour force participation and counter the drag from aging on growth.

All these negative factors require improving the possibilities for access to the Constitutional court by introducing individual claims by citizens; developing the capacity of human rights bodies and courts to deal with positive human rights and furthering the research on new developments in the practice of the international and supranational supervisory mechanisms and courts on issues related to social protection.

The work carried in some international organizations like the ILO on social protection floor should be broadly popularized and the new Recommendation concerning National Floors of Social Protection 202/2012 should be used in legislative activities and in argumentation of  the judiciary.