Individual Factors Affecting the Participation of Turkish People in the New Individual Pension System

Abstract

In Turkey, the first step of the individual pension system was based on volunteerism, but the voluntary system resulted in limited participation. Thus, the second step of the system has started to be implemented mandatorily since 2017, and participants were allowed to opt-out the system within two months. More than half of participants in the system preferred to leave the system. Therefore, this study aims to examine individual factors affecting their decision of staying in this system. A survey study was conducted with 374 people selected using the random sampling method. As a result of the study, a positive relationship was found only between the dependent variable and gender, but a significant relationship was determined only between the dependent variable and education level. Based on the results of this study, it is suggested that if the system will need to be improved, the low-performing fund management of the new individual pension system should be re-audited, and the confidence in the system should be increased in this way.

How Do Defaults Affect Behavior of Individual Retirement: Evidence from Ankara

“…The probability of opt out is 1,7 times more than single people. Aksoy (2019) sets forth similar result and she explains that the expenditures of spouses and children might require more consumption expenditure and thus reduce their saving ability. However, we also find that opt out rates of people with zero dependents was 2,09 times more than of people with at least 3 dependents, which required other explanations.…”

“…This finding is consistent with Brown et al (2012;, it is an expected result since women have more financial information than men in the mentioned studies. On the other hand, Madrian and Shea (2001) and Aksoy (2019) who carried out a similar study in Turkey, find that women are more likely to opt in the system than men. Therefore, considering that the financial literacy of women is lower than that of men in this study, it is seen that this finding is compatible with expectations in this sense.…”

“…However, there are two studies offering samples from Isparta, which examine the views of those who opt in and opt out the IRS considering automatic participation. In addition, Aydın and Selçuk (2017) search the determinants of opt in preferences for the scenario that automatic enrollment policy would be switched; also, considering the psychological factors, Aksoy (2019) analyzes the effect of demographic variables on opt in and opt out decisions after AES implemented. First study from Isparta, Gülay et al (2017), make a survey with academicians before the policy and the second one, Kocabıyık ve Küçükçakal (2018) analyze both public and private sector employees' views after the policy.…”

“…On the other hand, the opt in decision is highly determined by the ownership of any private pension contract before the policy since those people had developed a positive attitude towards the plan (experienced the gains from a system similar to the present one). Lastly, Aksoy (2019) identifies that women, young, single, low-income, and poorly educated people opt in more likely than relevant groups, from her survey study with 374 people under the age of 45. She explains that the only explanatory variable that is found to be statistically significant in the model estimation made by logistic regression is education level, by the fact that people with high education levels are aware of the low return on private pension funds in the past years and this group has the knowledge to manage their own savings.…”

“…For Turkey, it is highlighted in several studies that Turkey switched to IRS with AE before providing adequate information to society (Gülay et al, 2017;Kocabıyık and Küçükçakal, 2018;Rudolph, 2019). On the other hand, the concern about the returns of accumulations in IRS is likely to stem from the failures in the management of the savings made by public guidance in the past years (Aksoy, 2019). For this reason, it is seen that the public authority plays a major role in providing necessary information and education as well as ensuring the confidence in the system.…”