A Minimum Pension Guarantee Application for the Individual Pension System in Turkey

A Gendered Approach

Bibliographic Data

ID6408932
AuthorsŞule Şahin, Şule Şahın (0000-0003-4080-9165, Hacettepe University), Adem Yavuz Elveren (0000-0002-3960-3875, Kahramanmaraş Sütçü İmam University)
Year2014
Volume35
Issue3
Pages242-270
Publication date2014-07-03
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueWomen & Politics (JOURNAL)
Journal identifiersISSN: 0195-7732 • E-ISSN: 1540-9473
PublisherInforma UK Limited (PUBLISHER • GB)
DOI10.1080/1554477x.2014.921542
OpenAlexW1999794851
LanguageEN
Citations received3
References cited33

This study examines the minimum pension guarantee (MPG), a promise by government or pension fund management that at retirement, a person's annuitized benefit will be above a prespecified minimum level. For the first time, we use an actuarial model to discuss the role of MPG in lessening the gender gaps in pension incomes in the Individual Pension System of Turkey. Our results reveal that women would be more likely than men to receive pension subsidies and would require larger pension subsidies for every combination of investment decision and years of pension participation if MPGs were implemented.KEYWORDS: defined contributiongender gapminimum pension guaranteeindividual pension systemTurkey ACKNOWLEDGMENTSAn earlier version of this article was presented at the International Multidisciplinary Women's Congress, Dokuz Eylul University, Izmir, Turkey, October 13–16, 2009. We thank Ebru Kongar and the three anonymous referees for their valuable comments.Notes1. 1. Throughout the article we focus on the social security system as an essential part of the welfare state, which is a broader concept including housing, education, employment, and taxation policies. We refer to "privatization of social security" as the introduction of privately managed individual pension schemes. We do not differentiate between partial and full privatization because we aim to focus on gender gaps in retirement income in these private pension schemes. Either they constitute some part of the whole social security system or replace the whole system as observed in Chile up until the recent reform allowed the government to have great control on the system while the investment decisions and management are in private hands. Pay-as-you-go (PAYG) is a system where the annual contributions of the working population are used to finance the payments of the current retired population. Defined Benefit (DB) is a plan where the benefits of the retiree are based on the worker's wage and years of service. Defined Contribution (DC) is a scheme in which benefits are determined by the worker's total contribution to the system and the investment return of contributions. It is possible for PAYG systems to be based on DC plans as is observed in the new pension reforms in Sweden. However, in this article we consider the general case in which traditional PAYG systems are based on DB. Therefore, DC, private pension schemes, and private individual accounts are used interchangeably through the text.2. 2. For example, in France, it is shown that working five years less within a "life-long career" curtails pension benefits by 50 percent (Veil Citation2002, cited in Frericks and Maier Citation2007).3. 3. Women are the majority of part-time workers. For instance, women constitute 80−95 percent of part-time jobs in Italy, Germany, Canada, the United Kingdom, and the United States (Bardasi and Gornick Citation2008).4. 4. For instance, using unisex mortality tables decreases the gender gap 5.5 percent at retirement age 60 and more than 8 percent at retirement age 65 in Poland (Balcerzak-Paradowska et al. Citation2003) and decreases the gender gap from 4 to 11 percent, depending on age categories in Turkey (Elveren Citation2008b). There are some countries, such as The Netherlands and Denmark, that do not use gender specific tables in favor of women.5. 5. See Turner (Citation2006) for a detailed discussion on the fairness of increasing the retirement age.6. 6. According to Makinen (Citation2002) women earn 40 percent of what men earn (cited in Ginn Citation2004).7. 7. In addition to defined individual accounts, Chile has a guaranteed minimum pension, Argentina has a flat benefit pension, and Mexico has a social quota (i.e., the state contributes to finance of the system) and a minimum guarantee (see James, Edwards, and Wong Citation2003 for details).8. 8. See Elveren (Citation2008a) for the social security reform in Turkey.9. 9. Although only the middle- and upper-income earners participate in the IPS, we aim to analyze a general case in which participants are from all income groups. That is, we consider the whole population as participants, and we believe that a rapidly growing IPS might constitute an essential part of the social security system in Turkey in the future.10. 10. See Turner and Rajnes (Citation2001) and Walliser (Citation2002) for a detailed discussion on the MPG implementations across the world.11. 11. In existence of pension guarantee—especially in the case of married couples—the moral hazard may occur because individuals (or firms) may have tendency to choose riskier portfolios to invest, and thereby this will overall raises the cost of the plans (Cooper and Ross Citation2003; Merton and Bodie Citation1992; Smetters Citation2002).12. 12. Although we use the parameter values that are obtained from the models, it is possible to use a different mean value (a lower mean value to represent the current economic situation better) and keep the volatility parameter as in the original model to take the high uncertainty in the market into account as A. David Wilkie suggested (personal communication, April 2008).13. 13. The rates have been chosen considering the real increase in the minimum wage, which is 5.7 percent when we take the growth in GNP and 1 percent promotional increase into account. We use 4, 6, and 8 percent growth rates for the minimum guarantee amount to see what happens when the guarantee growth rate deviates from the growth rate of real wages.14. 14. We also choose lower contribution rates such as 6 and 8 percent for women as more realistic scenarios to examine the effect of the smaller contributions of women to the gender gap in the IPS.15. 15. For detailed discussions on this issue for Turkey, see Elveren and Hsu Citation2007, Elveren Citation2008b, and Şahin Citation2008

Actuarial science · Business · Economics · Government (linguistics · Investment (military · Labour economics · Market economy · Pension · Pension system · Political science · Private pension · Public economics · Social security · Subsidy · Welfare · Financial Literacy, Pension, Retirement Analysis · Gender, Labor, and Family Dynamics · Retirement, Disability, and Employment · Finance

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