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Simulation of Benefits and Risks after the Planned Privatization of the Pension System in Turkey: Is the Expected Boost to Financial Markets Feasible?

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  • Ahmet Tuncay Teksoz
  • Serdar Sayan

Abstract

The recently started process of social security reform in Turkey is widely argued to have a significant potential to affect the direction of further development of financial markets in the country in the years ahead, particularly through the planned introduction of privately managed defined-contribution (or money purchase) retirement plans. This paper aims to evaluate the prospects for the emergence and growth of a demand for these plans by analyzing investment risks and associated benefits facing employees purchasing them and to assess the effectiveness of various risk-reduction strategies that might be pursued by individuals as well as the government. Within this framework, a money purchase pension plan, supplementary to the basic state scheme, is considered. Possible variations in a member's pension income, arising due to stochastic increases in salary earnings and investment returns under alternative portfolios, are captured using an actuarial simulation model designed for this purpose. The cost to the government of providing guarantees on minimum pension incomes and the effects of changes in individuals' investment strategies, retirement ages, and career patterns on the retirement benefits obtained are investigated, and the results are related to various aspects of social security reform–financial market interaction in Turkey.

Suggested Citation

  • Ahmet Tuncay Teksoz & Serdar Sayan, 2002. "Simulation of Benefits and Risks after the Planned Privatization of the Pension System in Turkey: Is the Expected Boost to Financial Markets Feasible?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 38(5), pages 23-45, October.
    • Handle: RePEc:mes:emfitr:v:38:y:2002:i:5:p:23-45
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    Citations

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    Cited by:

    1. Gumus, Erdal, 2005. "Benefit-Cost Analysis of Reforming the Turkish Social Insurance Institution for the Self-Employed (Bağ-Kur)," MPRA Paper 42108, University Library of Munich, Germany.
    2. Bilal Bagis, 2017. "Macroeconomic Implications of Changes in Social Security Rules," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 01-20, January.
    3. Gumus, Erdal, 2005. "Benefit-Cost Analysis of Turkish Social Insurance Institute Gradual Privatization Proposal," MPRA Paper 42372, University Library of Munich, Germany.
    4. Glenn P. Jenkins & Godwin O Olasehinde-Williams & Roya Amel, 2019. "Private Benefits, Fiscal Costs, and Economic Resource Costs of the Private Defined Contribution Pension Systems in Turkey," Development Discussion Papers 2019-02, JDI Executive Programs.
    5. Sule Sahin & Adem Yavuz Elveren, 2009. "A Cost Analysis of a Minimum Pension Guarantee for the Individual Pension System in Turkey," Working Paper Series, Department of Economics, University of Utah 2009_13, University of Utah, Department of Economics.
    6. Gumus, Erdal, 2008. "Türk Sosyal Güvenlik Sisteminin Değerlendirilmesi ve Sosyal Güvenlik Kurumlarının Finansal Geleceği [An Evaluation of Turkish Social Security Reform Process and Its Financial Future]," MPRA Paper 42160, University Library of Munich, Germany.

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