The present social security program in Turkey, faced with significant fiscal problems, is undergoing serious reform by the coalition government with the support of the IMF. A new model will be adopted later this year, based on the Chilean example, which will provide traditional social security together with an investment-based private system of individual retirement accounts.
The social security reform consists of three stages. First, political reforms will be implemented in order to provide financial reliability to the public pay-as-you-go (PAYG) system, such as an increase in the retirement age, an increase in the minimum contribution quarters, and indexation of pensions to lifetime earnings. Next, the long term financial stability of the public PAYG system and the basis for a multilateral pension system will be instituted through administrative and institutional reforms in order to improve the scope, efficiency and transparency of the present system. Consequently, the existing three pension institutions will be integrated and the accounting and administrative operations of the pension, health and unemployment insurance programs will be separated. The third stage will introduce supplementary individual private pension schemes and the necessary regulatory framework.
A draft private pension law was prepared by the Ministry of Labour and Social Security, the undersecretariat of the Treasury, and the state planning organization, together with the advice of insurance sector experts, and was submitted to parliament. In addition, a draft law introducing tax incentives to private pension schemes was also submitted to parliament to support this new program. Such private pension funds will be realized as pension investment funds according to the principles determined by the Capital Markets Board. Such funds, issued by private pension companies, will be formed by various capital market investments. This law, together with the entire package of laws strengthening the pension system, is expected to be passed soon.
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