Turning potential retirees into workers: pension reform act of 1999 and beyond in Turkey

Abstract

Turkey's publicly managed PAYG pension system experienced serious financial difficulties during the past decade, forcing policy makers to legislate a pension reform act in 1999. Since past reductions in statutory entitlement ages for pension benefits were among the primary reasons behind the losses generated by the system, there was an evident need to extend average contribution periods. Accordingly, the major change introduced through the reform act of 1999 turned out to be a significant increase in entitlement ages for female/male workers from 38 /43 to 58/60 to become effective after a transition period of eight years. Yet, in February 2001, the Turkish Constitutional Court ruled that the gradual increases in the entitlement age should be made smoother within ix months. This paper investigates the implications of alternative schemes to increase statutory entitlement ages over time for the retiree-to-worker ratios and the composition of working age population. For this purpose, a genetic algorithm-based search routine is employed and possible rime paths of worker-to-retiree ratios over the 2000-2060 period are identified under alternative scenarios, using projection data for workers and retirees covered by SSK, the largest state-run pension institution in the country. The result indicate that the Turkish Constitutional Court's decision requiring the gradual increases in entitlement ages to be slowed down would not only affect the total supply of labor to the formal sectors but would also change the age composition of workforce.