Financial Supervision Commission proposes market indices instead of minimum yield for pension funds

According to an official announcement by the institution, the Financial Supervision Commission (FSC) is proposing a new system for assessing the yield of universal and professional pension funds. It is intended to replace the current minimum yield mechanism with a model based on market indices.

The changes are included in a draft ordinance prepared following recent amendments to the Social Insurance Code and aim at a more objective measurement of the results from pension fund management.

Key highlights

Through the new model, the regulator aims to encourage more active management of funds with a focus on higher returns for insured persons. The phased transition to the new system is planned for the period 2028–2031, until the necessary historical period for full implementation and reporting of the methodology is accumulated.

The goal is to build a framework that better reflects real market conditions and allows for the comparison of the results of individual funds against a clearly defined benchmark.

New reference framework for fund assessment

At the core of the model lies the introduction of a benchmark built on a combination of stock market indices reflecting the performance of financial markets. This benchmark will serve as the primary criterion for the automatic allocation of insured persons who have not chosen a fund, as well as an objective indicator of the performance of sub-funds in universal and professional pension funds, taking into account differences in the structure of investment portfolios and the long-term nature of pension savings.

The proposed structure of the new benchmark includes five global indices and a "cash" component and is tailored to the investment opportunities provided for by law – global and European debt and equity financial instruments, the FSC position states.

Which indices are included in the new benchmark

The inclusion of the global indices "S&P Global 1200 EUR Hedged PRI" and "S&P Euro PRI" is planned. The debt portion of the benchmark will be built from two bond market indices – "iBoxx € Eurozone 5-10 TRI" and "iBoxx EUR Liquid Corporates Diversified TRI".

The new methodology also provides for the participation of the Bulgarian capital market through the "BGBX40 PRI" index. In this way, the benchmark combines global and local dimensions, reflecting both international and national investment opportunities.

Cash funds (balances in current accounts) are included as a separate component with zero yield, which reflects the regulatory requirements for maintaining liquidity – for transfers to payment funds, for compensating heirs of deceased persons, and other similar operations.

Different weights according to the risk of sub-funds

The new structure provides for different weighting of individual components depending on the risk profile of the sub-funds. The largest share of equities will be in the dynamic sub-fund, intended for younger insured persons with a long investment horizon. In it, the total weight of stock market indices reaches 75%.

More conservative sub-funds will have a higher share of debt instruments and the cash component, which corresponds to a lower risk tolerance when there is a shorter period until retirement.

Methodology for calculating yield

The methodology provides for yield to be calculated annually using the geometric mean method for a five-year period, including the last 20 quarters. According to the FSC, this will reduce the impact of short-term market shocks and provide a more objective assessment of long-term pension asset management.

In this way, the focus shifts from instantaneous volatility to sustainable performance over time, which is closer to the real horizon of pension insurance.