Turkish Pension System
Individual Retirement, Savings and Investment System
The Individual Retirement Law in Turkey has been legislated in parliament and published in the Official Gazette on May, 7th 2001. The law will be enacted after 6 months following the publishing date.
If we look at nereye look at the general framework of the law we can point out the main properties of the individual retirement system as following :
The Main Properties of the Individual Retirement System :
*The system will be supplemantary to the existing state pension plans.
*The system will be voluntary and will be based on defined contribution plans.
*The contributions collected from the individuals will be transmitted to pension funds which will be established as the structure of a mutual fund.
*Anybody who is able to use his civil rights can enter the system.
*Only retirement companies (which have been introduced to the financial markets with this new law) will establish the pension funds. Retirement companies will be established with permission of Underscreteriat of Treasury. Retirement companies need an initial capital of 14.285.714 USD for establishment. Half of this amount should be paid in cash when the company begins to operate.
*At least 3 different funds with different portfolio structures must be established. (In this way individuals will be able to choose a fund according to their personal risk and yield expectations) .
*Although not stated in the law clearly, both employees and employers, if any, as well as individuals can make contributions to the pension funds.
*The rights of the investors are portable and accumulations can be transferred into another retirement company .
*At retirement, the investors can take their accumulations as lump sum or they can withdraw the accumulations partially. They will have an option in either buying an annuity from an insurance company or leaving the money in the funds to be invested. Retirement age is 56 providing that, people make contributions to the fund for at least 10 years.
*The fund will be managed by portfolio management companies according to the Law, which will be authorized by Capital Markets Board.
*The assets of the fund will be deposited in a custodian bank which will be approved by the Board. The custodian that is selected by the pension company and approved by the Board, will be a bank which operates in accordance with the Law on Banking.
*The system will be coordinated by Advisory Board. The regulations will be made by relevant institutions, Undersecreteriat of Treasury and Capital Markets Board.
The Regulations of Undersecreteriat of Treasury
In general the following issues will be regulated by the Undersecreteriat of Treasury. Undersecreteriat of Treasury shall lay down principles and procedures relating to the following subjects.
*The standards of legal documents related with the retirement company such as; pension contracts ... etc. ,
*Procedures regarding transfer of accumulations,
*Entrance to the system and retiring from the system,
*The fees; entrance fees for individuals, operating fees for the retirement companies ...etc. ,
*The establishment and operations of the retirement companies,
*Internal audit of the retirement companies,
*The qualification requirements for the staff of the retirement companies.
*Independent audit of retirement companies.
The Regulations of Capital Markets Board
In general the following issues will be regulated by the Capital Markets Board. The Board shall lay down principles and procedures relating to the following subjects:
*The standards of legal documents related with the pension fund such as; fund prospectuses, internal statute, application forms ... etc,
*The establishment and operation procedures of the pension funds,
*The registration and sale of the fund shares,
*Internal audit of the fund,
*The organization structure of the fund,
*Portfolio restricitions of the funds, the minimum and maximum percentages of the assets that will be invested in each asset class having different risk and yield structure,
*Evaluation of the fund assets,
*Licensing portfolio management companies,
*Mergers of the funds,
*Independent audit of the funds,
*Setting up performance standards.
The Pension Investment Fund System
In Table, the process of the retirement system is tried to be summarized graphically.
Pension Monitoring Center
On October 07, 2001 the law no. 4632 on Individual Pension Savings and Investment System, which is complementary to the state social security system on the basis of voluntary participation and the defined contribution principle, with a view to direct individual pension savings to investment to improve the welfare level by providing a supplementary income during retirement to contribute to economic development by creating long term resources for the economy and thereby increase employment, came into force. After the law and some other recent legislation that strengths the base of the system, Turkish Individual Pension System commenced on October 27, 2003 with the contribution of Turkey’s biggest six pension companies. At present there are eleven pension companies in the system.As a requirement of the law no. 4632, Prime Ministry Undersecretariat of Treasury authorized the ‘Pension Monitoring Center’ (In Turkish ‘Emeklilik Gözetim Merkezi’ or in short EGM) in order to ensure that the Individual Pension System operates in a safe and efficient manner, and protects rights and interests of participants. As a self-regulated e-governance application, EGM is established to produce accurate information on behalf of Turkish Treasury for daily electronic monitoring of the companies operating in the system. The establishment was completed by the shareholders with ca. 1.7 million USD paid-in capitals on July 10, 2003. One of the shareholder of the center is Prime Ministry Undersecretariat of Treasury with a small share in capital, other shareholders are 11 pension companies called Ak Emeklilik, Anadolu Hayat Emeklilik, Ankara Emeklilik, Aviva Hayat & Emeklilik, Başak Groupama Emeklilik, Fortis Emeklilik & Hayat, Garanti Emeklilik & Hayat, Koç Allianz Hayat & Emeklilik, Oyak Emeklilik, Vakıf Emeklilik, Yapı Kredi Emeklilik) which have licenses to operate in the pension branch with equal share in capital.
EGM, which is a core control mechanism, mainly assigned to perform the following tasks;
*Daily electronic monitoring & surveillance of pension company’s activities and e-reporting to the authorities,
*Storing standardized data for all individual accounts,
*Consolidation of data, based on the daily transactions of the pensions companies,
*Providing information to public and participants,
*Generating statistical & actuarial information,
*Providing analysis & reports,
*Implementing the exam of Intermediaries & keeping track of the electronic registries,
*Meeting the demand for common presentation, training activities, software & allied subjects,
*Organizing data for on time intervention to probable problems,
*Managing complaints from the participants,
*Coordinating projects of international associations to develop the system, giving support to pension companies,
*Analytically querying the system.
As of February 22, 2005, EGM (Pension Monitoring Center) has been registered as a governing member of the International Organisation of Pension Supervisors (IOPS), which is an international organization, aims to serve as the standard-setting body on pension supervisory issues and regulating issues related to pension supervision through the development and promotion of the implementation of international principles, standards, and good practices in pension supervision, having regard to the variety of different private pension systems.
* [http://www.bireyselemeklilik.gov.tr Turkish Private Pension System]
* [http://www.hazine.gov.tr/indexe.htm Turkish Ministry of Treasury]
* [http://www.egm.org.tr/about_EGM.asp Turkish Pension Monitoring Center]
* [http://www.cmb.gov.tr Capital Markets Board of Turkey]
* [http://www.emeklipedi.com Emeklipedi, a Turkish Private Pension Reference and Discussion Wiki]
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