Rainy Day Savings

Private Pensions

Fresh legislation opening up the private pensions segment has injected new vigor into the industry.

The government’s new regulation on private pensions is the crown jewel in efforts to incentivize and promote long-term saving in the private sector as a way to bolster government savings mechanisms. According to the new regulation, anyone over the age of 18 can now sign up for a private pension plan (BES), whereas before the plans were reserved only for those in employment. Those signing up are also set to benefit from another government incentive in the form of a 25% contribution to their monthly plans. The implementation of the new regulation already appears to be working; in the first two months of 2013, the number of BES holders grew by 200,000, up almost five fold on the same period in the previous year. There are now 3.1 million BES holders, with those accounts valued at a total of TL19.7 billion. The opening up of the sector has also helped insurers tap into the younger generation’s demand for alternative savings mechanisms. The most significant growth since the introduction of the reforms has been in the 18-34 age bracket, which makes up 42% of total participants. This fact also bodes well for the long-term profitability of the sector. “The Turkish government now has the ability to provide a standard social security system to all of its labor force, but it can be insufficient sometimes, especially for people who live in cities and have higher living standards,” said Mehmet Bostan, General Manager of Vakıf Emeklilik, adding that it “can be insufficient sometimes, especially for people who live in cities and have higher living standards. In order to satisfy sufficient social standards, there is a need for a more complementary system.”

Vakıf Emeklilik is one of 17 companies in the private pension system, a sector that has seen many new arrivals in recent years—there were just 10 firms present in the sector in 2008. Following Allianz’s purchase of Yapı Kredi Sigorta in 2013, all eyes will now be on the private pensions sector for the next wave of FDI. “Right now, we have 17 pension companies here, and we will have two more soon,” said Nurullah Okur, General Manager of Halk Hayat ve Emeklilik, one of which is set to be a partnership of participation banks, while the other will be a Japanese investment.

Those thinking of investing will also likely be keeping an eye on the state’s promise to contribute 25% to holders’ monthly plan. “Right now, people are wondering whether the state will actually pay that 25%; however, it will because TL1.2 billion has been allocated from the budget for this purpose,” said Åžeref Aksaç, General Manager of Ziraat Emeklilik. Ziraat Emeklilik has a 27% market share and created TL590 million premiums in 2012 to lead the sector. It is followed by Anadolu Hayat Emeklilik in the rankings, with Garanti Emeklilik and Halk Hayat ve Emeklilik in third and fourth place, respectively. Halk Hayat ve Emeklilik has over TL120 million in funds, over 100,000 contracts, and more than 80,000 participants.

The Association of Insurance and Reinsurance Companies of Turkey has high projections for future growth, predicting that the industry’s total fund assets will increase from the current TL19 billion to TL400 billion by the beginning of 2020. While the sector is currently enjoying a boom in new sign ups following the introduction of reform, its long-term effects could be more profound. “The changes that have been made with the new pension laws for 2013 is a huge step forward in getting people to understand that a pension is not about short-term savings, but is about long-term planning and accountability,” said David Fike, General Manager of Finans Emeklilik ve Hayat A. Åž., adding that insurers must also not stand still. “Developing and offering products such as fixed and variable income product will become more important in planning for customer’s post-retirement stage,” he concluded.

Turkey’s private pensions sector and wider insurance landscape could be about to change. With foreign attention fixed on Turkey, the latest developments in social security could open the floodgates over 2013. While changing mentalities could take time, many seem to be prepared for the wait.

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