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Turkey sets deadline for pension reform decision

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TURKEY – The Turkish government has set said it will decide on its strategy for reforming its pension system by the end of the third quarter of this year.

“The Ministry of Labor has developed a framework for analyzing social security reforms,” the government said. “Over the summer we will work on a range of reform options.”

“We will decide our preferred pension system reform strategy by end-September 2004 (new structural benchmark),” said economy minister Ali Babacan and central bank governor Süreyya Serdengeçti in a letter to International Monetary Fund managing director Rodrigo de Rato.

As previously announced the strategy will include the unification of the existing three pension institutions. There is also an objective to put the pension deficit on “a firm downward” path by 2007 and to reduce it to one percent of gross national product – from the current 3.5% - over the long term.

The government said it would submit a reform package – which will also include proposals on health care - to parliament in mid-December 2004 “with a view to passage by January 2005 and a phased implementation during 2005-07”.

The merger of the three systems could achieve administrative savings, according to the IMF. It said: “Parametric changes harmonizing all pensions in the future would also yield savings in the long run.”

But it said that “more ambitious reforms” are needed to make the country’s pension system sustainable”.

Turkey raised pensions and the minimum wage just days after passing the 2004 budget – which the IMF said was a “significant slippage”.

“Despite landmark reform in 1999, the current pension system is far from sustainable,” the IMF said. “At 3.5% percent of GNP the deficit is currently large and is set to double in the long run as Turkey’s demographics become less favorable.”

It added that Turkey’s indexation of pensions to inflation was “still overly generous” – along with “high replacement ratios of 15% and too short minimum contribution periods of 19.4 years. Turkey has a retirement age of 58 for women and 60 for men.

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