With the amendments to the Social Security Code adopted in March 2026, a multi-fund system is being introduced in the supplementary pension funds, with its actual implementation in the pension funds beginning on January 1, 2027, where 2026 is designated as a transition period for establishing sub-funds, adopting investment policies, and allowing insured persons to exercise their right to choose.

The reform represents a significant change in the way pension savings are managed, placing an emphasis on the individual choice of insured persons and more flexible investment of funds.

Currently, pension insurance for individuals in Bulgaria is organized within a three-pillar model.

The first pillar covers state social insurance, which is administered by the National Social Security Institute and operates on a pay-as-you-go basis.

The second pillar consists of mandatory supplementary pension insurance provided by licensed pension insurance companies. This is implemented through two main types of funds—universal pension funds, intended for individuals born after December 31, 1959, and occupational pension funds.

The third pillar includes voluntary pension insurance, available to individuals aged 16 and older, which is also managed by licensed pension insurance companies and is based on individual choice and additional contributions.

Effective January 1, 2027, amendments affecting both the second and third pillars of the system will come into force. These amendments introduce a structure of so-called “sub-funds,” with the reform primarily targeting universal pension funds within the mandatory insurance system (second pillar), but also voluntary insurance (third pillar).

The essence of the new model lies in the creation of different sub-funds within a single pension fund, which differ in investment profile and risk level. In this way, insured persons are given the opportunity to direct their funds toward a portfolio tailored to their investment horizon and risk tolerance. This approach follows established international practices, including in Central and Eastern European countries, where its implementation has led to better results in the management of pension assets.

Within the framework of universal pension funds (second pillar), the law introduces an obligation to establish three main types of sub-funds—dynamic, balanced, and conservative. The criterion for distinguishing between them is the proportion of investments in variable-income financial instruments.

In the dynamic sub-fund, this share can reach up to 90%, which implies higher risk and greater potential for returns. The balanced sub-fund allows up to 55%, while for the conservative sub-fund the share is limited to 25%, making it more suitable for individuals seeking greater stability and lower volatility. The law does not impose minimum thresholds for these investments, thereby providing pension insurance companies with the necessary flexibility in developing their investment strategies.

With regard to voluntary pension funds (third pillar), a more relaxed regime is adopted. Pension insurance companies may establish an unlimited number of sub-funds with different investment characteristics, provided that at least one balanced sub-fund must be established. This approach takes into account the market-oriented nature of voluntary insurance and allows for greater freedom in structuring the products offered, depending on the interests of the insured persons and market conditions.

From a legal standpoint, sub-funds constitute separate assets within the respective pension fund, without possessing independent legal personality. To ensure transparency and protect insured persons, specific requirements are introduced, including the maintenance of separate accounting records, the keeping of separate registers with the custodian bank, and the calculation of the unit value for each sub-fund. The procedure for establishing and registering sub-funds, as well as the requirements for investment policy and risk management, are also regulated.

The introduction of the multi-fund structure also entails an initial reallocation of assets among the sub-funds. The law permits the transfer of both cash and financial instruments between sub-funds within the same pension fund, with the aim of limiting transaction costs. The same mechanism applies to subsequent changes in the choice of sub-fund by insured persons. When transferring between pension funds managed by different pension insurance companies, the current rule remains in effect that the transfer is made exclusively in cash.

A key element of the reform is the principle of free choice. Insured persons should determine the sub-fund in which their funds are to be invested upon their initial enrolment in a universal pension fund. To limit passive behaviour, a default allocation mechanism is provided, based on age criteria and life-cycle logic — younger individuals are directed toward riskier strategies with a longer investment horizon, and as they age, funds are gradually transferred to more conservative sub-funds.

An explicit restriction has also been introduced for individuals with three or fewer years remaining until they become eligible for a pension, as they are not permitted to participate in a dynamic or balanced sub-fund. The aim is to protect accumulated funds from adverse market fluctuations during a period when opportunities to offset losses are severely limited.

Insured persons have the right to change their choice of sub-fund, including switching between different risk profiles, subject to the requirements established by law regarding the frequency of changes and the assessment of permissible investment risk. The process should be accompanied by the provision of appropriate information and advice to enable informed decision-making.

The changes are also significant for employers, as supplementary pension schemes are often part of compensation and benefits policies. The new model implies greater awareness among employees and creates conditions for more active participation on their part.

In conclusion, the introduction of the multi-fund system represents an important step toward modernizing supplementary pension insurance (mandatory and voluntary), as it combines greater freedom of choice with regulatory mechanisms to protect insured persons and creates conditions for more effective long-term management of pension savings.

This article has been prepared for and is part of the Legal Digest issued by Penkov, Markov & Partners. The publications therein do not constitute legal advice and are not binding. Penkov, Markov & Partners reserves all rights to this material, and any distribution thereof is subject to the prior written consent of the law firm.