The Private Pension System (BES) entered into force on October 7, 2001, with the law numbered 4632 in our country, the first contracts were made on October 27, 2003. The number of pension companies, which was 11 at the beginning, is now 20. As of August 2021, the total savings in the system is 152 billion TL, and the number of participants is approximately 6.9 million people. The average savings per person is 22,000 TL. The point reached in 18 years is far behind where it should be at. However, while the ratio of private pension savings to national income in OECD countries is 49.5% on average, it is 2.5% in our country. Turkey-specific reasons for this (as per my contentions) can be listed as follows:
However, reasons other than the first can be overcome with adequate information and awareness.
Trust Factor: Private pension system in Turkey has a strong control and oversight mechanism. Pension companies are those with a strong capital structure, established with the permission of the Turkish Ministry of Treasury and Finance and audited by the Ministry every year, and also subject to EGM (Pension Monitoring Center), independent audit, and actuarial audit. Portfolio management companies and funds that manage the funds are also subject to CMB audit and independent audit. Portfolio managers consist of experienced experts with required CMB licenses. In addition, the fund shares of the participants are transferred to Takasbank A.Ş. for storage.
Importance of State Contribution and Incentive: Among OECD countries, Turkey is one of the countries with the strongest incentive scheme in the private pension system. State contribution amounting to 25% of the contributions you pay in BES is paid to your account. The maximum amount of state contribution you can receive is 25% of the gross minimum wage for the relevant year. For 2021, this amount is 10,732.50 TL. With a simple calculation; If a high-income person deposits 40,000 TL per year, he receives 10,000 TL, and a low-income individual receives 1,000 TL if he invests 4,000 TL. In addition, state contributions are kept in a sub-account and are invested in the contribution funds.
State Contribution Progress Rates: In case of leaving the system before the age of 56, in proportionate to the time spent in the system, the amounts in your state contribution account; You are entitled to 15% if you stay in the system for at least 3 years, 35% if you stay at least 6 years, and 60% if you stay at least 10 years. In other words, even if a person who enters the system at the age of 20 leaves at the age of 30, he can receive 60% of the savings in the state contribution. Even if the savings are evaluated in the lowest risky funds (for example, money market fund), it is not possible to reach up to an equivalent return in any other risk-free investment instrument such as deposits, interest-free dividends, repo, etc.
The Requirement As to Turning the Age of 18 Has Been Abolished: With the amendment made in the Private Pension Savings and Investment System Law No. 4632 on 25.05.2021, minors (children) who have not completed the age of 18 are allowed to be included in the system through their legal representatives within the framework of custody/guardianship provisions. Children have been allowed to be included in the system with a small amount of contribution to gain the habit of saving and to acquire the much-needed savings they will need in the future.
Opportunity to Invest Savings in Various Funds: You can invest your savings in your choice of pension mutual funds. If you want, you can balance risk by diversifying in a single fund or by allocating to various funds. Pension companies have sufficient funds for this diversification. For instance, stock fund, debt instruments (bonds-bills) fund, Eurobond fund, gold, and precious metals fund, interest-free funds, money market fund, index fund, mixed fund, etc. In addition, with the opportunity to change your fund distribution 6 times a year, It is also possible to increase/decrease risk in the wake of market cycles.
For BES, pension companies, funds, and all other information and statistical reports, and to get information from the Pension Monitoring Center website, please refer to https://www.egm.org.tr/.
Looking forward to being with you in upcoming issues.
Assist.Prof. Bülent İLHAN
Department of Economic and Finance
