Turkey: Inflows from foundations
Reeta Paakkinen finds mixed views on the expected inflow of assets from some 250 associations and foundations
The Turkish pension industry is preparing itself for an inflow of assets from the country's 250 associations and foundations. A new regulation, which came into force in August 2008, allows company pension foundations, associations and other funds with pension commitments to transfer their assets into the private pension system either entirely, or partially, by June 2012. The regulation was designed to increase private pension assets and also imposes a regime of monitoring on the foundations' actuarial base, by regularly reporting to the Treasury on their finances from 1 May 2010.
At present, foundations and associations in Turkey have total estimated pension assets of TRY8bn (€4bn). Despite the huge potential the new regulation gives for private pension assets to grow, many in the industry remain sceptical about foundations' motivation to become more transparent and outsource the management of their assets.
Gökhan Dereli, actuarial consultant for OYAK, who is advising several foundations on the issue, notes there is insufficient data on the finances of associations and therefore the upcoming requirement to submit actuarial reports to the Treasury may reveal "inconvenient truths" about their financial situation. Furthermore, many associations and foundations are reluctant to make their finances public and to outsource the management of their assets, Dereli says.
"The transfer is not obligatory either, it is just an opportunity given to foundations by the new regulation. In these circumstances, I do not see any major inflow of assets to the private pension system taking place in the near future. Of the TRY8bn, some TRY4bn are the assets of the foundation of the major banks. These foundations are owners of a significant part of shares in the banks in question and they are not likely to be transferred to the pension system anyway as the bank hardly needs assistance in managing its assets. On the other hand, the remaining assets of the other foundations, are still a huge sum of money," Dereli says.
Taylan Türkölmez, general manager of Yapi Kredi Emeklilik says some of the associations and foundations consider accumulated capital as their strength. "For some of these, actuarial reports have indicated deficits in their asset liability match and revealed inconvenient truths. The foundations realise that even if their asset liability match is OK today, in ten years it will not be so, are maybe more keen to outsource the management of their assets," Türkölmez says.
In the current situation, according to Türkölmez, it has proved complex to evaluate the asset base of the foundations, as many of these include not only bonds and shares, but also real estate. "Property, which many funds own, is one of the difficulties in evaluating the foundations' assets. It has not been valued properly or regularly," Türkölmez says.
Another change that comes with the transfer of assets from a foundation to the private pension system is the change from a defined benefit regime to a defined contribution one. "Most foundations are defined benefit schemes, and some are struggling to make ends meet. However, many of the older associations and foundations have many passive members, who would prefer not to change to defined contribution," Gökhan Özum, head of strategic planning at Garanti Pension says.
Dereli adds that in some foundations, passive members have even made moves to block the change from defined benefit to defined contribution. "Passive members are a problem as they have voting rights in the general assemblies of these foundations. Big part of foundations' assets belong to them. These issues will not be resolved overnight, and as a result [of this process], some foundations will go bankrupt in the future,"
Dereli calls for the government to introduce a "more stimulating legal environment to encourage asset transfers from foundations to the private pension system."
He says: "This would mean more thorough tax incentives. Otherwise either a very small proportion of the foundations' assets will be transferred, or, it will take very long time for transfers to take place."
On the other hand, despite doubts on the future success of the new regulation, there is also optimism prevailing in the market. "This year we will work quite closely to gain customers from foundations and associations, and are planning to set up a team focusing on this part of the market. So far two of them have indicated their commitment to transfer their asset to us," Jetse de Vries, chief executive officer of ING Emeklilik says.
"Our expectation is that there is currently some TRY3.7bn of assets that might be transferred to the pensions system. We anticipate eventually most of these assets will be transferred to pension companies, but the initial sum may be just TRY55m," Özum says.