Gov’t sees large savings in new system

Gov’t sees large savings in new system

Gov’t sees large savings in new system

Ali Babacan says the new model will decrease insurer firms’ expenses.

The Turkish government expects a significant increase in savings with a new individual pensions system that was revealed by Deputy Prime Minister Ali Babacan yesterday, which adds to recent efforts to boost savings to provide a shelter for the economy against domestic and global risks.

The government spared 1.25 billion Turkish Liras for the system in its 2013 budget, Babacan said at an Istanbul meeting, adding that this amount could increase if the demand turned out to be higher.
Basically, the system has the government promising to pay 25 percent of the individual’s pension fees on a monthly basis. The payments by the government are not deposited to the insurers’ accounts, but rather a separate account in Takasbank.

“Starting from January, I and my wife will also join the individual pensions system,” Babacan said. The system was based on voluntariness, as obligatory solutions had raised criticism, he added, advising citizens to remain in the system for at least 10 years in order not to face losses from early withdrawals.
Any participants who leave the system before three years cannot claim a right to the 25 percent state contribution.

Turkish insurer companies have been raising hopes of a jump in business volume due to the new system, which will decrease their expanses, Babacan said. The fund volume in the sector will exceed 400 billion in 2023, up from today’s 20 billion said Recep Kocak, the chairman of Turkey’s Insurance Unity. A recent report by The Boston Consulting Group (BCG) forecasted half of this. Economists say a leading motivation behind the model was the government’s need to increase levels of savings in the country.

The savings ratio to gross domestic product (GDP) is 12.9 in Turkey, The Boston Consulting Group report showed, which is far below other emerging markets. The figures for Brazil, China, India and Russia stand at 18.9, 52.5, 30.3, 30.9 percent respectively.

Lower than competitors

“If one considers Turkey’s economic growth targets, this savings ratio is too small, Turkey should reach a 20 percent to 25 percent domestic savings ratio to GDP in a bid to achieve 4 to 5 percent sustainable growth and pull the current account deficit to below 5 percent of GDP,” the report said,
The government recently differentiated income tax on bank deposits according to their maturity, encouraging longer-term operations. Accordingly, an 18 percent tax will be implemented on six-month deposits, with the rate falling to 15 percent for those up to 12 months. The rate for longer-term parking is 13 percent. In addition, the code also eased withdrawals before the due date in order to ease hesitations about long-term parking.

Meanwhile, Turkey’s Social Security Council (SGK) has determined 400,000 pensioners who are continuing to work without registering, daily Hürriyet reported yesterday. According to the law, such citizens are obliged to register and pay one quarter of their pension salaries as fees.