Compulsory pension system to boost savings

Compulsory pension system to boost savings

Compulsory pension system to boost savings A draft bill which revises the private pension system, dubbed BES in Turkey, so as to stipulate automatic coverage of all wage earners under the age of 45 to the system by their employers, was accepted at a parliamentary commission late Aug. 9 in a bid to boost the country’s savings, Reuters has  reported.

Employers will include their employees in a pension system which is offered by a company authorized by the Treasury in line with the new regulation.

The contribution margin of the employee will equal some 3 percent of the actual premium yield. The cabinet will be able to double this amount, decrease it to 1 percent or put a fixed limit to the contribution margin, according to Reuters. 

Finance Minister Naci Ağbal said the draft bill would enable the private pension system to spread and workers to increase their welfare during retirement.

“This draft will also create a diminishing impact on the current account deficit by raising savings,” he noted in a speech at the commission.

With the new system, which is planned to come online by next year, some 100 billion Turkish Liras (around $34 billion) of additional resources will be created over the next decade with the expected participation of some 6.7 million people in the private pension system, according to Ağbal.

The 25-percent state contribution to the payments will be preserved in the new system and an additional 1,000-lira contribution will be granted to those who remain in the system after a two month trial period, he added, as quoted by Reuters.

Workers who do not want to use the plan will be able to exit in this two-month period, and their savings will be returned to them. The private pension system currently has 6.4 million users and 56 billion liras of funds in total. This amount is around 2.5 percent of the country’s gross domestic product.

The low private saving rate has been long been the Achilles heel of the Turkish economy.