PRIVATE PENSION SYSTEM IN TURKEY

Cengiz Çalışkan 07.08.2013Strategic Planning Intern Istanbul,

Effects of New Regulations on “Savings ”

2

Context

Introduction to “Private Pension System”

“Private Pension System in Turkey ”

Turkey vs Peer Countries

“Private Pension Funds” 10-Year Outlook

Conclusion

Q&A

3

Having a retirement plans these days...

4

Introduction to Private Pension System(BES)

•BES is a private pension system complementary to the existent public social security system (SGK).

•If the participant is already a member of the existent public social security system, he/she may join BES in order to ensure them to meet their additional expenditures.

•In addition, customers who are not members of any social security system may join BES.

5

2001 - The law no. 4632 on Individual Pension Savings and Investment System

“Private Pension System in Turkey ”

• In November 2003, with 11 private organization joining the system, the process of providing and marketing individual retirement plans took start

• MILESTONE:%25 State Contribution for each personal payment

• Gross domestic savings rate in Turkey has exhibited a sharp drop in recent years.(Highest 17,3%,Lowest 12,8%)

• This has led to an enlargement in saving-investment gap. To boost saving ratio, existing private pension system (PPS) was revised in mid-2012 in order to encourage household savings and thus increase savings rate

• As of 19/07/2013

- 17 Private Pension Company- Assets Under Management : 23.167,7 mlnTL- Total State Contributiobn : 476,9 mlnTL- Number of Participants : 3.726.813- Total Contribution : 19.515,1 mlnTL- Total Contribution Invested : 19.064,5 mlnTL

6

“Private Pension System in Turkey ”

Note: Total AUM reached TL 23 bn as of July 19th

7

Czech Republic

•Structure of private pension system (1994) Voluntary,Personal Pension System

Defined Contribution System

•Coverage Czech or EU Residents can apply aged 18 or over

60% of economically active people have supplementary pension insurance, (age of 60+ not eligible)

25% of participants receive contributions to the supplementary plan from their employers

•Contributions Sign a contract with a pension fund,(Min.CZK 100 (USD 4.6))

State Contribution (Min 50 CZK – Max 150 CZK)

8

Chile

• The Old Chilean Pension System (In 1979)

-32 Pension institutions

-2,291,183 Workers

-Over hundred different pensions schemes

• REFORM (In 1980)

-The new pension system was established on a defined contribution basis

9

Chile

• The New Chilean Pension System

“The new Chilean pension system consists of four main tiers. All pension savings are managed by external funds and providers.”

1) The new solidarity pension(2008)

2) The compulsory pension system(1981)

3) Occupational pension plans: voluntary pension savings

4) Occupational pension plans: collective voluntary pension savings.

10

Poland

•Structure of private pension system (1999)

• Voluntary,Occupationary ,

Employee Pension Plan,(PPE )

• Mandatory,Personal

Open Pension Funds(OFE)

• Voluntary Personal

Individual Retirement Account(IKE)

11

“Private Pension Funds” 10-Year Outlook

In 1Q13, number of the people who save money ratio decreased 5pps compared to 4Q12(14.7% to 9.7%)

«No Saving,Planning» ratio increased to 30.1%

Individual debt level affects interest in private pension system by 33.7%

Companies should take different choices into account .

Low income level is an important handicap increasing saving rate

12

Market Expectation - Next 10 Years

Ata Invest Company Report (Anadolu Hayat / June 29,2012)

If Turkey converges to the CzechRepublic which also has a voluntary defined contribution private pension

system,interms of AUM/GDP (6.3% as of 2010) , The volume of Turkish private pension system may easily reach US$ 90-100 bn by 2020.

• Regarding the seniority of citizens, the mass within The range of 25-55 years old constitutes the main customer base for private pension system.

• 36% of this population (27 mn) makes up the entire labor force in Turkey.Range of years divided as a 3 different groups below:

1. 25-34 range1. 8 mn of workforce2. Average annual income of TL 18k.3. The penetration of private pension system in this group is at 13%.

2. 35-44 range 1. 4.5 mn of workforce2. Average annual income of TL 26k3. The penetration of private pension system in this group is at 14%.

3. 45-54 range1. 4.5 mn of workforce2. Average annual income of TL 26k3. The penetration of private pension system in this group is 14%.

13

Market Expectation Next 10 Years

Anadolu Hayat Emeklilik,EXECUTIVE VP ,Uğur Erkan (January 14,2011)

• 2020 Forecast,

5,5-6 million participants

Assets Under Management 115 bln

AUMRatio 5,5 – 6 %

PPF/GDP Ratio is low compare with OECD countries.

Ata Invest Company Report (Anadolu Hayat / June 29,2013)

14

Market Expectation Next 10 Years

Source: Ata Invest Company Report (Anadolu Hayat / June 29,2013)

15

Conclusion

Wrap Up

• 25% state contribution

• Gross domestic saving is low

• BES awareness rising

• Supportive for financial stability

• AUM/GDP ratio is low (2.3%)

What should we do?

• Generate more scheme for low income

• Political stability

• Financial Literacy

• Economic Development

• Sustainable Growth

16

Q&A