Demographic situation and determination of pension age – the case of Turkey

İlker Şirin and Fanny Janssen discuss in their article “Determination of Ideal Pension Age and Developments in Ageing: a case study for Turkey” different measures, old-age definitions, and decision criteria that result in different alternatives for the ideal pension age. İlker Şirin introduces the main aspects of the article in this research spotlight.

Population ageing is often discussed hand in hand with sustainability issues because it has consequences for public finance, pension expenditures, health care, social security demand, and long term care. To safeguard sustainability, pension reforms are on the agenda within Europe. If the goal is to pay pensions for the same number of remaining years, pension age should be increased to threshold ages that allow for constant remaining life expectancy in future years. For example: if an average person at age 65 in a country in 2010 has 15 years remaining life expectancy and in 2030 the life expectancy at 67 is projected to be 15 years, then pension age should be increased to 67 in 2030. In this regard, a 67 year old person in 2030 is assumed to be as young as a person at 65 in 2010. Anyway, pension age is increasingly linked to demographic developments. Redefining pension formulas (such as in Finland, Germany and Portugal) or linking qualifying conditions such as required contribution years (France) to life expectancy are just some examples (OECD, 2011: 81Şirin and Janssen, 2013).

Within Europe, Turkey currently has a young population. In 2012, according to TurkStat, median age in Turkey is 30, 11% of the population is aged 60 and over, 7.5% of the population is aged 65 and over, and the old-age dependency ratio (OADR) is 11 indicating that for every 100 people aged 15-64 there are 11 people aged 65 and over. Eurostat data designates that, for the EU28 median age in EU28 is 41.5, 23.9% of the population is aged 60 and over, 18% of the population is aged 65 and over, and for every 100 people aged 15-64, there are 27 people aged 65 and over (in 2012). Projections made by TurkStat in 2012 show that EU28 levels will be attained by Turkey  around the year 2045; Median age- in 2048, Population aged 60 and over-in 2042, Population aged 65 and over-in 2044, OADR- in 2043. Thus, in the 2040s, Turkey’s population will be as old as EU28 today.

As expressed above, OADR in Turkey for 2012 is 11%, i.e. for every 100 people aged 15-64, there are 11 people aged 65 and over. The inverse of the OADR is known as the support ratio [(15-64)/65+]. The support ratio in Turkey is around 9, which means that there  are 9 people at working age to support for every person above age 65. This is an advantage which is sometimes also known as “demographic dividend” or “window of opportunity” (AIV, 2009; p.13). However, Turkey’s social system currently does not take full advantage of the demographic dividend in the country. This can be shown using another indicator: the contributor to pensioner ratio is 1.9 in Turkey (according to Social Security Institution, 2013). There are 1.9 active contributors in social security system to support every current pensioner. It means that the potential support ratio of 11 is not realised in social security due to three primary reasons. First is the issue of early retirement – average age at retirement for 2010 is 51 for the males and 50 for the females. People are retiring before reaching 65 years of age. This means that although the population is young, Turkey is “old” in terms of social security as the pension system is producing young pensioners. Secondly, low labour force participation and employment – not all people in age group 15-64 are participating in labour force and are employed to support the pension regime.  Finally, undeclared work – among the people that are working and aged 15 to 64, not all people in age group are registered contributors.

In our study we propose pension ages for Turkey, based on the developments taking place in both population structure and mortality, by examining conventional and prospective measures of population ageing, and by comparing different decision criteria. The suggested pension ages differed strongly from the official ones. Results of our article show that the pension age should not be a predetermined constant age, but should take into account the demographic situation, which comprises of developments in both ageing and mortality.

Author: İlker Şirin (MSc) – Social Security Expert & Actuary, Social Security Institution, Department of Actuary and Fund Management, Turkey. For any questions or comments, contact him at isirin@sgk.gov.tr. Article was co-authored with Fanny Janssen (PhD) – an Assistant Professor of Analytical Demography, Population Research Centre, University of Groningen, Faculty of Spatial Sciences.

 

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