Private benefits, fiscal costs and economic resource costs of the private defined contribution pension systems in Turkey

ABSTRACT

This study addresses economic issues associated with the private defined benefit pension system in Turkey. Findings show that the new Turkish pension scheme has generated significant welfare improvements for individual investors, but at a loss in tax revenue and an economic resource cost to the country. If the bank-administered Tax-Free Contribution Accounts and/or Tax-Free Savings Accounts, similar to those operating in Canada, were adopted in Turkey and the requirement of holding government securities was lifted, such schemes would provide contributors with benefits similar to what they currently enjoy under the new Turkish scheme, while eliminating the economic resource costs of administration and improving their net fiscal impact.

KEYWORDS:

• Private pensions
• Turkey
• pension administration costs
• economic resource cost

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Kayhan and Egrican, “Voluntary Private Pension Funds,” 587.

2 Holzmann, “Global Pension Systems”, 2; Clements, Eich, and Gupta, Equitable and Sustainable Pensions, 3.

3 Mercer, Melbourne Mercer Global Pension Index, 19.

4 Beath et al., “Canadian Pension Fund Model,” 1.

5 Teksoz and Sayan, “Simulation of Benefits and Risks,” 24.

6 Ertuğrul and Gebeşoğlu, “The Effect of Private Pension,” 172.

7 Ertuğrul, Gebeşoğlu, and Atasoy, “Mind the Gap,” 140.

8 Peksevim and Akgiray, “Reforming the Pension System,” 33.

9 Elveren, “Social Security Reform,” 215.

10 Ibid., 219.

11 Brook and Whitehouse, The Turkish Pension System, 6.

12 KPMG Turkey, “Turkish Pension System Amendments,” 5.

13 Rudolph, “Pension Funds,”16.

14 Borzutzky and Hyde, “Chile’s Private Pension System,” 61.

15 Mucaj, “Efficiency of Pension Funds,” 73.

16 Summers, “The After-Tax Rate.”

17 Boskin, “Taxation.”

Additional information

Notes on contributors

Glenn P. Jenkins

Glenn P. Jenkins is currently the President of Cambridge Resources International Inc. (CRI), and a Professor of Economics at Queens University, Canada. He is also an Institute Fellow Emeritus of Harvard University and is the Past President of the International Society for Benefit Cost Analysis. In 1985 he founded the Program on Investment Appraisal and Management at Harvard University and was its director from 1985 to 2000. He has advised governments and published widely in the area of pension reform. His areas of research are in the fields of cost–benefit analysis, public finance, pension systems, energy economics, international trade and economic development.

Godwin Olasehinde-Williams

Godwin Olasehinde-Williams received a PhD in Economics from Eastern Mediterranean University in Northern Cyprus and is currently teaching at Istanbul Ticaret University. He has published several research articles in international academic journals. His areas of interest include macroeconomics, applied econometrics, and energy and environmental Economics.

Roya Amel

Roya Amel is a PhD candidate at the Department of Banking and Finance, Eastern Mediterranean University in Northern Cyprus.