Bulgaria introduces new investment profiles for second pension pillar

New rules for Bulgaria’s second pension pillar allow individuals to choose how their mandatory retirement funds are managed through three distinct investment profiles: dynamic, balanced, and conservative. These funds, which consist of 5% of an individual's insurance income, are managed by pension companies through investments in stocks and bonds.

Under the new model, if no choice is made, funds will be automatically allocated based on age to mitigate risk. Individuals under 50 will be placed in a dynamic fund, those between 50 and three years before retirement in a balanced fund, and those within the final three years in a conservative fund. This structure aims to maximize potential returns for younger workers while prioritizing capital preservation as retirement approaches.

Experts note that the dynamic profile can invest up to 95% of assets in stocks, the balanced profile up to 55%, and the conservative profile up to 25%. While historical returns for stocks have averaged around 8%, experts warn against making panicked shifts from dynamic to conservative funds during market downturns, as this can lock in financial losses.