TURKEY – The Turkish government has tightened its pension purse strings following a decision to cut benefits and increase the retirement age amidst an overhaul of its social security system.

The new social security bill – debated for roughly two years – will see men and women retire at 65 rather than at 60 and 58 years old respectively.

Labelled “politically sensitive” and “complex”, this move by government is aimed at slashing the cost of Turkey’s expensive welfare system, according to a report in the Financial Times today.

According to the FT, the pension reforms will also hopefully iron out several legislative kinks that have allowed several workers to retire in their 40s on a full state pension and go back to work.

‘Kinks’ such as these have helped Turkey amass one of the biggest social security deficits in Europe. Last year alone, the social security deficit was pegged at 4.8% of gross domestic product.

According to reports, the social security bill has quelled market and investor fears regarding government’s commitment to institute necessary but unpopular reforms ahead of general elections in 2007.

It is the most recent in a string of reforms passed by the government under Prime Minister Recep Tayyip Erdogan. The FT said analysts reckon the bill is among the most important any Turkish government has passed - including the abolition of the death penalty.

Last week IPE cited officials saying Turkey’s new individual pension system is experiencing exponential growth.

“Despite its being based on the principle of voluntary participation, our country’s individual pension system appears to be gathering more and more acceptance in the two years that have passed since it was launched,” said Treasury Undersecretary Ibrahim Halil Canakci.