Decision No. 10 of 13 September 2012 on Constitutional Case No. 15/2011
Proceedings under Art. 149, para 1, item 2 and item 4 of the Constitution: the constitutionality was challenged of § 6, item 18, littera “a” and littera “b” of the Transitional and Concluding Provisions (TCP) of the 2012 Public Social Security Budget Act as was their compliance with international treaties to which the Republic of Bulgaria is a signatory. The texts challenged amend Art. 68, paras 1 and 3 of the Social Insurance Code. The challenged texts from the 2012 Public Social Security Budget Act read thus: Item 18. “In Art. 68:
а) In paragraph 1 the second sentence shall be amended to read thus: “As from 31 December 2011, the retirement age shall be increased, from the first day of each successive calendar year, by 4 months for both women and men until reaching the age of 63 years for women and 65 years for men.”
b) Paragraph 3 shall be amended to read thus: “If a person is not entitled to the pension under Paragraphs 1 and 2, prior to 31 December 2011 the person shall acquire the entitlement to a pension upon attainment of the age of 65 years for both women and men provided that the person has at least 15 years of actual contributory service. As from the 31 December 2011, the retirement age shall be increased, from the first day of each successive calendar year, by 4 months until reaching the age of 67 years.”
Having discussed the ascertained facts and circumstances and the reasons and considerations as stated in the challenge and in the positions of the parties, the Constitutional Court took into account the following in order to rule:
On the inconsistency of § 6, item 18, littera “a” and littera “b” of the of the Transitional and Concluding Provisions of the 2012 Public Social Security Budget Act with the principle of the welfare state (the Preamble of the Constitution) and with Art. 51, paras 1 and 3 of the Constitution
The welfare state as a characteristic of the modern Bulgarian state is present in the Constitutional Court record of cases. The welfare function of the state is seen as the redistribution of the burden of the costs incurred in the effort that seeks to ensure a moderate existence financially and culturally to each stratum of the population. Modern constitutionalism makes the postulate of the welfare state the underlying principle of the state that is committed to democracy and rule of law. For this postulate to go beyond the confine of a blank formula and social characterizing definition devoid of real substance, it is entrenched as a Constitution principle from which an obligation derives for the authorities in the State to take energetic and efficient actions to achieve social justice and social certainty. The principle of the welfare state constitutes a task for the State to pursue active social policies that are to guarantee social protection. A major component of such protection is to organize and maintain a public insurance system as a system of mutual assistance by which common interest is protected: within the framework of that system citizens pay social insurance contributions and are paid compensations providing definite law-established conditions and requirements are met.
Concerning long-term social insurance, i.e. the pensions, the so-called „pact between the generations” is assigned a central function (Opinion of the European Economic and Social Committee on the еconomic and budgetary impact of ageing populations”, Official Journal, С 161, 13/07/2007). With that pattern the social insurance contributions paid by the present-day working generation are spent on the pension payments to the preceding (working) generation. Public social security functions on the basis of the Pay As You Go principle. That means that social security contributions that are paid now are spent on pensions that are paid now. The rule is that social justice, security and solidarity can be guaranteed providing the number of recipients of compensations is significantly smaller than the number of contributions payers. Circumstances that upset this balance make it imperative to effect reforms in the social security system. In its rulings the Constitutional Court has recognized such well known circumstances that pressed for reforms, including higher eligibility criteria for contributory-service and retirement-age pensions. The Court recognized such circumstances in the dispute in question: the able bodied population continues to decrease over previous years in consequence of adverse demographic developments; demographic trends of aging population; longer average life expectancy and decreasing number of people in working age – all these face the social security system with negative consequences. On the one hand, the social security contributions payers decrease in number; on the other hand, the period over which people live on pension is longer while the number of pensioners grows. The long-term forecast warns that public finances will be subjected to permanent and growing pressures arising from the projected growth in pension payments as a percentage of the Gross Domestic Product. Under such circumstances a really “welfare” state is bound to take measures to stabilize the pension system, hence to generate and maintain conditions that enable the fundamental right to social security, including the right to pension. Therefore a reform to improve the dependency ratio in the pact between the generations does not infringe on the principle of the welfare state; on the contrary, it will implement the mandated social protection deriving from the attribute “welfare state”. The state fulfils an obligation. Hence the conclusion that in fact the challenged legal texts do not infringe on the principle of the welfare state.
The problem is that the adoption of the challenged legal texts “shortens the time horizon” for pension system reforms that otherwise are imperative: the challenged texts of Art. 68 of the Social Insurance Code provide that retirement age shall increase from 31.12.2011, or from 31.12.2020 prior to the amendment, i.e. the reform, in essence, was planned before the approval of the amendment; however, the amendment shifted the starting date of the reform and it is to begin 9 years earlier. Therefore it is not the startup date for age increase that is disputed; it is a dispute that has been positively resolved owing to objective developments both in Bulgaria and across Europe.
Hence the conclusion that a decision in principle was taken in recognition of the imperative for a step by step transition to an older retirement age and that this decision can be traced in the existing legislation since 2010; the constitutionality of the decision has never been challenged. The core of the current dispute is over the startup date for age increase. Also the manner in which the amendment took effect was challenged. The Constitutional Court found that the challenged “shortened time horizon” of the pension reform has more to it than a formal dimension; in the case discussed a question is asked in principle about the predictability of the course of the reform and of the amendments to the legislation and also about how they would impact the exercise of fundamental civil rights in a sensitive area like long-term social security. The question was debated in the National Assembly during the second reading of the Draft 2012 Public Social Security Budget Act. The MPs noted that the change came as a surprise and that the shift of the startup date for the retirement age increase 9 years earlier was detrimental to the natural human desire for a predictable life, career development planning and retirement scheduling and that the surprising push on the reform shakes people’s confidence in the social security system.
The Constitutional Court upheld this opinion as, no doubt, the effects of the reforms planned should be predictable in time. Predictability is a requirement to the legislating policy formulation and implementation. The predictability of legal regulation is a sign of legal certainty, hence of the state committed to the rule of law. Alongside, the Court admitted that this sign should not be made absolute – modern constitutionalism both in and outside Bulgaria does not pose a requirement to that effect to the lawmaker. Concerning the social domain, in times of transition or of crisis it undergoes changes that are not always smooth and predictable and might see competition between the justice and stability of social security. Such changes are acceptable providing the welfare state meets its commitments and creates conditions to enable fundamental civil rights in the social domain. The Court found that the challenged amendment to the Social Insurance Code regarding an increased retirement age did not violate the principle of the welfare state and was not in contravention of the Constitution.
Alongside, the Constitutional Court drew the conclusion that the earlier startup date of retirement age increase must be paralleled by efficient measures that the State will take to guarantee the expected capacity for work of the people who will work longer – more healthcare and pressing adequate changes in the conditions and the mode of compensation. The Constitution principle of the welfare state will not let the reform in question boil down to increased retirement age only: if this measure is not followed by measures required from the State, it may appear unneeded and make worse the quality of life of citizens.
The Constitutional Court considered that in the context of the prevailing trend in Europe for retirement age to go up, the workers who are advanced in years will inevitably face a greater risk than their younger colleagues of exposure to diseases and bodily indispositions. No doubt, higher average life expectancy must trigger off higher healthcare spending. Regarding the healthcare system, an aging population will call for investment in disease prevention, quality of the service delivered and diagnosis particularly of diseases that old people suffer from. The Constitutional Court underscored that if the State authorities fail to take such pressing measures, they will be disregarding the Constitution imperative of the welfare state and such a violation of the Constitution will have unpredictable but in any case grave negative consequences for the individuals and society.
Concerning the essentials and specifics of fundamental civil rights in the social sector, the Constitutional Court has a clear understanding on that matter: unlike individual fundamental rights that are termed “defensive” and “negative”, the quintessence is not defense against the public power’s ingress into guarded privacy but demand for positive actions by the State in the social domain and for involvement in the State’s achievements; that is why these rights are termed “shared” and “positive”. They can be exercised only if the State takes the required and expected measures and provides conditions and safeguards. What is typical of such social rights is that the State should see to them. The judgment of how social rights will materialize lies with the National Assembly which is to pass rules and procedures to enable the Constitution-proclaimed fundamental rights. The right to social security (Art. 51, para 1 of the Constitution) is such a fundamental civil right in the social sector. The Constitution proclaims thus: “Citizens shall have the right to social security and social assistance” whereas the mode of insurance, the contribution rates, the insurance basis or the insurance income and other rules and procedures are subject to individual laws. The lawmaker judges the appropriateness of a social insurance system to be adopted and the principles of this system in compliance with the Constitution prescriptions and also the appropriateness of one concrete authorization or another, providing it is not inconsistent with the Constitution-entrenched principles.
In practice the Constitutional Court practice has pronounced multiple rulings on different cases concerning the right to social security: this right was seen as the right of any individual to join the social insurance system and whenever an eventuality arises that is covered by an insurance scheme, to make a claim on the respective fund. To avail of such a fund is possible only inasmuch as this fund keeps prior accumulations; for that reason the right to social security by definition presupposes a need of calculated fixed contributions in cash. The Constitution contains “social security” as a concept of familiar content but does not establish any type of a social insurance system. The valid legal framework is to be found in the Social Insurance Code and secondary legislation that was passed on the basis of the Code. The function of a Constitution-proclaimed right to social security derives from the nature of the social security system that is in place in the State: a system of mutual assistance and solidarity to protect the communal interest whereon the contributions of all scheme-covered individuals provide support to members of society in need who are unable to earn income because of a certain eventuality – maternity, illness, accident, old age, etc. The core of the right to social insurance is in guaranteeing social security. The Constitution-protected substance of this right comprises the social security components: protection in the eventuality of illness, maternity, industrial accident, old age, needed tending, and unemployment, among other. These are the social security system’s achievements to be enjoyed whenever an eventuality arises and unlike social support, these payments make up a fraction of the insurance-covered individuals’ earned income. In that context the Constitutional Court found irrelevant the reference that the challenge made to Art. 51, para 3 of the Constitution which is not related to social security but names the beneficiaries of special legal protection: It is not the aged who benefit but only the aged without relatives and unable to support themselves. The Court did not find any violation of Art. 51, paras 1 and 3 of the Constitution.
The challenge gives special attention to the need of social dialog and refers to the agreement on financial stability of the public social security and improvement of pension legislation: the agreement was signed by representatives of the central government and of trade unions and employers associations whereby the increase of retirement age by 6 months (and not by 4 months as per the challenged provision in force) is scheduled to start in 2021. The Court noted that “social dialog” is not a concept of the Constitution. No doubt, such a dialog is a manifestation of civil society in the meaning of Art. 4, para 1 in fine of the Constitution. In a modern state the manifestations are diverse and multiple but the different mechanisms of coordinating and consulting with social partners are not specified at Constitution level, i.e. they are not a constitutional norm.
On the inconsistency, as claimed in the challenge, of § 6, item 18, littera “a” and littera “b” of the Transitional and Concluding Provisions of the 2012 Public Social Security Budget Act with Art. 4, para 1, Art. 5, para 1, Art. 87 and Art. 88 of the Constitution
It was claimed that in violation of Art. 4, para 1, Art. 5, para 1, Art. 87 and Art. 88 of the Constitution the challenged texts of Art. 68, paras 1 and 3 of the Social Insurance Code were submitted by MPs after the bill’s approval on first reading when these texts were not incorporated and a conclusion was drawn that the texts challenged were voted upon once which constitutes a violation of Art. 88 reading that bills shall be read and voted upon twice, during different sessions and of Art. 87 as the MPs could not exercise the right to introduce modifications on a bill after its first reading.
As stated, the TCP of the draft 2012 Public Social Insurance Budget Act submitted to the National Assembly do not contain any paragraph to modify Art. 68 of the Social Insurance Code. Furthermore, the motives to it indicate that the 2012 pension estimates are based on the parameters as laid down in the Government’s midterm fiscal framework where the currently required age of acquiring entitlement to contributory-service and retirement-age pension under Art. 68 of the Social Insurance Code (60 years of age for women and 63 years of age for men) remains in 2012. The report of the Budget and Finance Parliamentary Committee for the first reading copy/pasted the philosophy of the bill introduced but no longer contained the explicit explanation of the motives in the bill, viz. that the retirement age valid in 2011 will be valid in 2012, too. During the first floor reading of the bill the Minister of Labor and Social Policy drew attention to the fact that given the escalating economic crisis in Europe it would be needed to step up the cardinal reforms concerning the step-by-step increase of retirement age in order to stabilize the insurance system and to ease the pressure on it. Between the first and second reading MPs put forward 2 propositions to modify the bill that had been approved on first reading and concerned Art. 68 of the Social Insurance Code. The lead committee entirely supported one of the proposed modifications and submitted it to floor discussion as “a proposition from the committee”. Following a debate the National Assembly approved the proposed modification which was incorporated into the 2012 Public Social Security Budget Act as item 18 of § 6 of the Act’s TCP. In view of these facts it was claimed that the proposition was voted once and this constituted defiance towards Art. 88 of the Constitution.
The Constitutional Court had repeatedly stated that the Constitution arrangement of the legislating process is parsimonious. For this reason the entire mechanism that the bill debate and vote procedure constitutes, was further developed and specified in the National Assembly’s Standing Orders (Rules of Organization and Procedure of the National Assembly) which is a special act adopted on the basis of the Constitution (Art. 73). Also the Court has ruled on the rule that each bill shall be read and voted upon twice in the following sense: the two “readings” are two crucial phases of the legislating process and proceed as a floor debate and vote. Apart from the floor discussion, bills are read and voted upon in the standing parliamentary committees. Once a bill has been debated and approved as a whole on first reading, the MPs are free to propose modifications and supplementary texts. This phase is not explicitly mentioned in the Constitution; however, the second floor reading would be senseless providing the bill shall not be modified and supplemented. According to the National Assembly’s Standing Orders the MPs propositions are discussed by the standing committee which is a lead committee on the specific bill, included in the committee’s report for the second reading, subjected to floor discussion and voted upon. Therefore, the procedure thus established implicitly suggests the idea that there will be texts that will be debated and voted upon once by the second floor reading as they have been proposed between the first and the second reading of the bill. That fundamental principle of the modern legislating process is not in conflict with the Constitution rule that bills shall be read and voted upon twice as it is part of the second reading. However, the second reading is applied in combination with the rule of parliamentary law that such proposed texts shall be read and voted upon during the second reading providing they are not incongruent with the philosophy and the scope of the bill that has been voted upon on first reading (Art. 71, para 1 of the National Assembly’s Standing Orders). The judgment of the existence or inexistence of such incongruities lies solely with the National Assembly.
The Constitution does not define the budget acts content: it contains them as a notion of known content and sets no restrictions on their specific provisions. Following the National Assembly’s practice that is based on the Statutory Instruments Act and the Enforcement Decree it is for the concluding provisions to acts to enable amendments to other acts to which the former are directly related. The Statutory Instruments Act and the Enforcement Decree are statutory instruments of special importance for the legislation; both were passed in 1973 and continue to be in force, amended though, under the present Constitution. Regarding budget legislation the State Budget Procedures Act (SBPA) explicitly provides that the bill shall be debated according to the procedure established by the Rules of Organisation and Procedure of the National Assembly (Art. 21, para 1 от of the SBPA). It is true that while budget acts are valid over a period of fixed duration, their concluding provisions primarily enable them to fit into the rest of the legislation. The Constitutional Court found that the challenged amendments to Art. 68 of the Social Insurance Act have direct bearing on the public social insurance budget both on the revenue and spending component as they change the conditions that make an individual eligible to contributory-service and retirement-age pension from 1.01.2012 onwards which impacts directly the way of spending money accumulated in the pubic social insurance funds to grant and pay pensions in 2012. The practical enforcement of the challenged amendments to Art. 68 of the Social Insurance Code is directly conditional on the annual public social insurance budget acts as they financially enable the said amendments to materialize. They [the amendments] fit into this practice which is not anticonstitutional.
The challenge did not give any reasons why a law shall not bring essential amendments to codes. The Constitution does not contain “code” as a kind of statutory instrument. The already mentioned Statutory Instruments Act contains it and explicitly provides that the provisions [of this Act] applicable to laws shall furthermore apply to codes (Art. 4, para 2) and this is to mean that a code may be amended, apart by a code, by a law too. The Constitutional Court shared and supported the critical understanding as expressed in the challenge, viz., that amendments to codes shall be made by an amending act to the respective code while the comprehensive nature of the codification is recognized as this corresponds with the idea of stable legal arrangement. Alongside, the Constitutional Court recognized that the purpose of an amendment brought by the concluding provisions of another law is to make the existing legislation consistent and to prevent its noncompliance with the principle of the state governed by the rule of law (Art. 4, para 1 of the Constitution) and thus the amendment is not anticonstitutional on such grounds.
The argument drawn from Art. 87 of the Constitution, viz., that the exercise of the right of Members of Parliament to introduce bills was infringed on when the texts challenged were debated during the second reading is not cogent: the MPs do not have the right to introduce annual budget bills (argument from Art. 87, para 1 of the Constitution). However, the MPs are free to make propositions and to take part in both the committee and floor discussion of the propositions made once the budget bill is voted upon on first reading. The motion perceived this right as a form of introduction of bills. The verbatim reports of the second reading of the procedural act show that the MPs engaged in a heated debate on the texts in question, including on proposed rejections and rewording, so the Constitutional Court did not establish any infringement on the accepted form of bill introduction nor did it establish any unconstitutionality on such grounds.
On the claimed noncompliance of § 6, item 18, littera “a” and littera “b” with Art. 26, para 2, littera “a” and littera “b” of the TCP of the 2012 Public Social Security Budget Act with Art. 26, para 2 of Convention No. 102 concerning Minimum Standards of Social Security adopted by the International Labor Organization (ILO) in 1952 (DV, No 73/2009)
Premising on that the challenge is targeted solely at § 6, item 18, littera “b” of the TCP of the 2012 Public Social Security Budget Act. The movants claimed that the step by step increase of retirement age to 67 years (from 31.12.2011 onwards) as under Art. 68, para 3 of the Social Insurance Code is at variance with Art. 26, para 2 of Convention No. 102 which reads that the prescribed age shall be not more than 65 years.
The Constitutional Court found that the motion referred to only part of the text of Art. 26, para 2 of Convention No. 102. Here is the unabridged text of Art. 26, para 2 of Convention No. 102 of the ILO:
“PART V. OLD-AGE BENEFIT
Art. 26 ...
(2) The prescribed age shall be not more than 65 years or such higher age as may be fixed by the competent authority with due regard to the working ability of elderly persons in the country concerned.”
The Republic of Bulgaria has ratified this Convention; the Convention has been promulgated (DV, No. 73/2009) and become binding on the Republic of Bulgaria. As evident from the text of Art. 26, para 2 of the Convention, it is expressly admitted to opt for a higher age at which individuals are eligible to pension with due regard for results from analyses, observations and conclusions about the age beyond which the elderly people in the country concerned lose their working ability upon a judgment from a competent authority (in this case the Legislature).
The Constitutional Court recognized that pensions pursuant to Art. 68, para 3 of the Social Insurance Code are intended for individuals whose contributory length of service was not long enough and not sufficient to make them eligible to a contributory-service/retirement-age pension, i.e. who are unable to meet the general requirements (minimum standards). For these individuals to be able to exercise their right to long-term social security (Art. 51, para 1 of the Constitution), i.e. to be eligible to contributory-service and retirement-age pension, Art. 68, para 1 of the Social Insurance Code envisages particular prerequisites other than the generally valid ones: i.e. entitlement to a pension upon attainment of the age of 65 years for both women and men provided that the person has at least 15 years of actual contributory service. As from the 31 December 2011, the retirement age shall be increased, from the first day of each successive calendar year, by 4 months until reaching the age of 67 years.
The Constitutional Court did not find inconsistency with Art. 26, para 2 of the ILO Convention No. 102 given the mentioned specific nature of this type of pensions and also, given the objective demographic developments in the country – the aging population but also the longer life expectancy and physical and mental fitness till older age: henceforth that part of the challenge should be dismissed.
Председател: Евгени Танчев