Country Document. Update Pensions, health and long-term care. Turkey March 2014

Transcription

1 Country Document Update 2014 Pensions, health and long-term care Turkey March 2014 Author: Oğuz Karadeniz Disclaimer: This report reflects the views of its authors and these are not necessarily those of either the European Commission or the Member States. On behalf of the European Commission DG Employment, Social Affairs and Inclusion

2 Table of Contents Table of Contents Table of Contents... 2 List of Abbreviations Executive Summary Pensions System description Major reforms that shaped the current system System characteristics Details on recent reforms Assessment of strengths and weaknesses Adequacy Sustainability Private pensions Summary Reform debates Health care System description Major reforms that shaped the current system System characteristics Details on recent reforms Assessment of strengths and weaknesses Coverage and access to services Quality and performance indicators Sustainability Summary Reform debates Long-term care System description Major reforms that shaped the current system System characteristics Details on recent reforms in the past 2-3 years Assessment of strengths and weaknesses Coverage and access to services Quality and performance indicators Sustainability Summary Reform debates References Annex Key publications

3 List of Abbreviations List of Abbreviations Turkish English ASPB Aile ve Sosyal Politikalar Bakanlığı Ministry of Family and Social Policies EYHGM Engelli ve Yaşlı Hizmetleri Genel Müdürlüğü The General Directorate of Disabled and Elderly Services ÇSGB Çalışma ve Sosyal Güvenlik Bakanlığı Ministry of Labour and Social Security EGM Emeklilik Gözetim Merkezi Pension Monitoring Centre GDP Gross Domestic Product GIB Gelir İdaresi Başkanlığı Revenue Administration GHI Genel Sağlık Sigortası General Health Insurance HM Hazine Müsteşarlığı Undersecretary of Treasury İŞKUR Türkiye İş Kurumu Turkey Employment Institution KB Kalkınma Bakanlığı Ministry of Development OECD Organisation for Economic Cooperation and Development SB Sağlık Bakanlığı Ministry of Health SGK Sosyal Güvenlik Kurumu Social Security Institution SHÇEK Sosyal Himetler ve Çocuk Esirgeme Kurumu Social Services and Child Protection Institution SSK Sosyal Sigortalar Kurumu Social Insurance Institution SYDV Sosyal Yardımlaşma ve Dayanışma Social Aid and Solidarity Fund Vakfı SYGM Sosyal Yardımlar Genel Müdürlüğü General Directorate of Social Assistance TÜİK Türkiye İstatistik Kurumu Turkish Statistical Institute (TurkStat) 3

4 Executive Summary 1 Executive Summary Pensions: In order to increase national saving, the private pension reform was introduced in June 2012 by Law Number 6327 and the legal changes that came in to force on 1 January 2013.The new system has a state contribution matching of 25 % of contributor premiums built it and is limited to the annual gross minimum wage. Moreover, the maximum administrative and fund management fees of private pension funds were reduced with the reform. The tax deduction for employers was increased from 10% to 15% of the employee salary. In the public pension scheme, fair adjustment in pension amounts was implemented in January With the new pension adjustment system, pension amounts for pensioners who retired in different years were aligned and nearly 1.7 million pensioners' pension amounts were increased. The pension expenditures have increased from 7.9% in 2012 to 8.3% of the GDP in The main reasons for the rise in pension expenditures have been a rise in the inflation rate and the adjustment pension amounts. Additionally, the definition of invalidity was extended in August 2013 (the means-tested old-age pension scheme threshold was increased and the means-testing rules were changed in 2013 with Law Number6495.)This means that more poor elderly and disabled citizens who have no social security can achieve a minimum income more easily. The Social Assistance Law was changed with Law Number Due to this reform, social security contributors can benefit from social assistance, provided that their household income per capita is below the poverty threshold. A new means-tested survivor s pension programme was launched for survivors in Health: The Occupational Health and Safety (OHS) Law covering all workers came into effect on 30 June The OHS Law adopts a preventative approach in order to reduce the occurrence of work injuries and occupational diseases. The General Health Insurance was extended in 2012 and 2013 to people who have just graduated from high school, orphans and women under the protection of the state against family violence. The rate of the population that is not covered by any health insurance decreased from 6.52% in 2012 to 1% in Although the general health insurance scheme covers everybody in Turkey, there have been some de facto coverage problems because of a variety of reasons. The debts of inappropriate health expenses due to misuse of health insurance were written off by Law Number The additional fee which is collected from insurees by private hospitals increased from 90% to 200% of SGK s service prices with Law Number This means that out-of-pocket health care payments will increase over the next few months. Turkey has tried to implement two main projects in the past two years in order to cope with the misuse of health services. The e- prescription project was launched in July It aims to prevent fraudulent and false prescriptions. The Prescription Information System (PIS), which can evaluate and monitor prescriptions, covered all physicians in 2013.The Rational Drug Using National Plan ( ) was prepared in order to provide coordination and cooperation and to create awareness about rational drug use. The palm-print recognition project, which launched 2012, also aims at limiting inefficiencies and misuse. This project was extended to all private hospitals by the end of Long-Term Care: In Turkey, there is no long-term care insurance system. The elderly are usually taken care of within their own family. It is a family obligation. Irrespective of age, a means-tested monthly payment of the net minimum wage is paid by the Ministry of Family and Social Policies (ASPB) to a family member caring for a disabled person in need of care living at home. If the person is cared for in a care home, a payment of double the minimum wage is paid by ASPB. Elderly people can, obviously, also benefit from this system. The number of people benefiting from the system had reached 427,484 by December There have been no major reforms of the long-term care system, except for the institutional reform 4

5 Executive Summary process. The Care Services Quality Standards were published by the EYHGM in 2013.The efforts on establishing a long-term care insurance scheme have continued. ASPB prepared a draft report and projections on contribution effects of an introduction of a long-term care insurance. According to the projections, contribution ratio changes between 1.5% to 3% of the contribution base, depending on the long-term care financing model and coverage. In February 2014 ASPB Organization Law was amended by Law No: Due to the new reform, ASPB can provide long term care services for needy elderly people aged above 65+ via purchasing care services by the Public Procurement Law. In addition, ASPB can finance care services which are provided by other public institutions and municipalities. Thus, local governments (municipalities) are stimulated to offer care services to ASPB. With the new law, the poverty threshold for home care benefit eligibility was increased in case more than one disabled lived in the household. 5

6 Pensions 2 Pensions 2.1 System description Major reforms that shaped the current system The pension system in Turkey has experienced financial deficits since the beginning of the 1990s for various reason such as the high number of undeclared work and workers, low premium collections, high replacement rates and early retirement. In 1999, the implementation of Law Number 4447 brought changes in the pension parameters. For example, the minimum retirement age of women was increased from 38 to 58 and the retirement age of men was increased from 43 to 60. However, the retirement age of those people who started work before the reform was not increased. Instead, it was determined according to the year they started to work. Thus, the cost of early retirement has been transferred to future generations. With the 1999 reform, the minimum pension was decreased from 70% to 35% of an insuree s minimum wage. Moreover, the average income of all years was taken as the basis for pension calculations, instead of focusing on the average of the last ten years (See Law Number ). These precautions were not enough to reduce the deficit of the social security system, so a new law (Law Number ) was implemented on 1 October 2008, designed to tackle the deficits of the pension system by reducing the accrual rate and increasing the retirement age. The retirement age will gradually increase for persons who started work for the first time after this reform and will reach 65 years for both men and women by 2048 (Table 1). The life expectancy at birth is estimated at 74,7 years for male and at 79,2 years for females (2013) (TÜİK, 201/a3:40). Table 1: Retirement Age for New Insurees (entering the labour market after2008) Years Male Female Source Law No: Date: 08 September Number: Official Gazette Date: 16 June Number : Official Gazette 6

7 Pensions Moreover, pension premium payments of self-employed workers, workers and civil servants who started work after the reform were aligned (see Karadeniz, 2011).Besides the voluntary private pension system providing complementary pension income was introduced in 2001 with the Law Number System characteristics The pension system in Turkey consists of programmes which provide a PAYG-financed social insurance system, a tax-financed minimum pension, as well as voluntary private pension funds financed by defined contributions (see Figure 1). There have been no changes in the main pension indicators and systems in the reporting period. Figure 1: The Turkish Pension System Social Security Institution (Contributory System) Law No:5502 and 5510 Ministry of Family and Social Policies (Non-contributory system) Law No:2022 (tax-financed minimum pension) Individual Private Retirement Funds (Voluntary) General Directorate of Pension Services Social Aids and Solidarity Funds General Directorate of Social Insurance Contributions Source: Karadeniz, O. Number of the contributory days and retirement age The required number of contributory days is 7,200 for workers. Civil servants and selfemployed workers, however, have to accrue 9,000 days (Law Number 5510, Article 27). The retirement age is 58 for women and 60 for men who started work for the first time after the 1999 reform. But the retirement age will gradually increase for persons who started work for the first time after this reform and will reach 65 years for both men and women by Moreover, there are simplified retirement conditions for part-time workers, miners, people with physically demanding jobs and disabled people (Karadeniz, 2012). Individual Pension Funds 3 Date: 7 April 2001, Number 24366, Official Gazette 7

8 Pensions In Turkey, there is no additional second-pillar pension scheme available beyond the PAYG defined-benefit first-pillar system, which is financed by public social security funds (ÇSGB, 2007:18). The voluntary private pension system serves as a third pillar, and not as a second pillar, unlike in many other countries. Joining the private pension system is optional. There is a tax incentive for the participants and the employers who pay contributions. The same incentive is provided, regardless of whether the participant receives a lump sum or a pension payment. The person is required to be over the age of 56 in order to receive a pension from this system (Law Number 4632, Article 6). There are 13 private pension companies within the private pension system. In March 2014, 4,362,435 persons paid contributions. The amount of contributions by 14 th March 2014 (since 2003) was TL 4 22,722,200,000 and the total funds amounted totl25,886,000, Social Assistance Social assistance and services financed by taxes are structured and organised within various institutions and programmes. Social assistance includes old-age pension, invalidity pension, war veteran s pension, survivor s pension and orphan s pension. A means-tested pension scheme was introduced in 1976 (Law Number 2022) and it includes the following pension provisions: a) Means-tested old-age pension: It provides old-age pension for poor and elderly citizens above 65 years of age. In October 2013, the poverty threshold was one third of the minimum wage per person and the pension payment amounted to TL (EYHGM, 2013/a). b) Means-tested old-age pension for needy disabled persons: It provides old-age pension for poor, needy, disabled and elderly citizens above 65 years of age. In October 2013, the poverty threshold was one third of the minimum wage per person and the pension payment amounted to TL per person for people who are disabled to a degree of 70% or more (EYHGM, 2013/a). c) Means-tested disability pension for disabled people and their families: It provides a disability pension for poor disabled persons aged 18 to 64. The poverty threshold in October 2013 was one third of the minimum wage per person and the pension amounted to TL for disability degrees between 40% and 69%. When the disability level of a person is 70% or higher, the disability pension amounts up to TL (EYHGM, 2013/a). If a disabled person under the age of 18 is cared for by a relative, who is in financial hardship, this carer is eligible for a disabled relative s pension (TL ) (EYHGM, 2013/a). d) Means-tested survivor s pension: It provides for survivors who do not receive a pension from the contributory system. The pension amount is TL 250 per month. It is financed by taxes and administrated by the SYDV Details on recent reforms Private pension reform: In Turkey, national private savings are not sufficient, and stood at roughly 9.7% of GDP in 2013 (KB; 2013/b: 17)). In order to increase national saving, the private pension reform was introduced in June 2012 by Law No: and the law changes that came in to force 01st January 2013.The private pension reform includes four main measures aimed at increasing the amount of contributors and funds: 4 5 One Euro equals TL 2,72 (1st October 2013) accessed on 29 November accessed on 21st March

9 Pensions 1- State contribution matching instead of tax deduction: The previous system had a tax deduction tool which covered the income taxpayer only. However, nearly 25% of active contributors were not subject to income tax (housewives, etc.). It is estimated that only 35% of total contributors were benefitting from tax deduction (İçöz, 2012, Özel Yalçın, 2013). The new system features state contribution matching. It amounts to25% of the contributor s premium and is limited to the annual gross minimum wage. State contributions will be vested after three years of participation and will increase gradually during the contribution period. Contributors are able to access 100% of state contribution (and any return on it) when they complete the age of 56 (i.e. the private pension retirement age). Contribution matching will cover not only income taxpayers but all contributors, including housewives, etc. (İçöz, 2012). 2- Reducing administrative and fund management fees of private pension funds: The maximum administrative fee was reduced from 8% of premium to 2%. Moreover, the maximum annual fees for fund management decreased from 3.76% to 2.28% with a new regulation which came into force in November Tax exemption for contributions: Contributions were taxed when contributors withdrew their savings before the reform. After the reform, only investment gains are taxed. 4- Increasing tax deduction for employers: Tax deduction for employers was increased from 10% to 15% of the employee salary. Fair Adjustment in Pensions: Fair adjustment in pension amounts was implemented in January Before the reform, pensioners who worked for the same periods were receiving different pension amounts, depending on their year of retirement (Karadeniz, 2012). There were six pension calculation periods (ÇSGB; 2013:32). With the new fair adjustment system, pension amounts for pensioners who retired in different years have been aligned. Thus, pension amounts were increased for 1,783,708 pensioners. It is estimated that the annual cost of the new fair adjustment system is nearly TL 2.7 billion (ÇSGB, 2013:32,33). Extension of Coverage Definition of Invalidity: The SGK Invalidity Regulation was changed and the coverage definition of invalidity was extended in August 2013.Various disorders such as Down syndrome and autism were added to the SGK Invalidity Regulation. Some neurological and psychiatric disorders, as well as heart, lung and digestive system diseases were added to the SGK Invalidity Regulation by creating a detailed list. It is estimated that 4,250 person will benefit from this new regulation, whose cost is estimated to be approx. TL 40 million, which is 0.5% of the total budget per year (SGK, 2013/a). Increasing means-tested old-age pension scheme threshold: The means-tested old-age pension scheme threshold was increased by nearly 100% in August 2013 (by Law Number 6495). Thus, the coverage of the means-tested old-age pension scheme has been expanded, so that more poor elderly and disabled citizens who have no social security can achieve a minimum income more easily. Reforming Social Assistance Law: One of the biggest problems in Turkey is unregistered employment and contribution evasion. However, the social assistance laws could cause more people to work in unregistered employment, because in order to receive benefits, a person was not allowed to work regularly, according to the former social assistance legislation. Thus, employees were reluctant to work as registered workers, so that they could continue to receive social assistance benefits (Karadeniz, 2012/a). The Social Assistance and Solidarity Law was changed with Law Number6353. Thanks to this reform, social security contributors can benefit from social assistance provided that their household income per capita is below the poverty threshold, which is one third of the net minimum wage. 7 Date 09/11/2012 Number:28462 Official Gazette 9

10 Pensions The means-tested survivor s pension programme: The poverty ratio is high among widows in Turkey (Özar, et al., 2011). The government launched a new programme for widows who do not receive a pension (from the contributory system). It is financed by taxes and is administrated by the SYDV. Nearly 212,000 widows receive a survivor pension with this new programme Assessment of strengths and weaknesses Adequacy According to TÜİK Income and Life Condition Survey (2012) the poverty rate among elderly people has increased from 17.2% in 2011 to 18.7% in For males aged 65+ years the poverty rate is 157.7%, and for females it is 19.4% (TÜİK, 2014). The most important income source of elderly people is social transfers (76.6% of total income) in Turkey. This ratio was 74.7% in 2011 (TÜİK, 2014). Another study examined elderly poverty and the social protection system in Turkey (Karadeniz, Durusoy, 2013). As the results in Table 2 show, in % of needy elderly people received means-tested old-age benefit (non-contributory system), 8.8% received old-age pension (contributory system), 1.5% received survivor s pension and 2.6% social assistance benefit. This means that 38.5% of needy elderly people did not receive any benefits at all. As a comparison, this figure was 41% in 2009 (Karadeniz, 2012). Table 2: Distribution of needy elderly people by social benefits and gender (in 2010), (in %)* Type of social benefits Means-tested old age benefit (non-contributory system) Old age pension (contributory system) Survivor benefit Social Assistance Gender Male Female Total Male 8.10 Female 0.70 Total 8.80 Male 0.00 Female 5.10 Total 5.10 Male 1.50 Female 1.10 Total 2.60 Those in receipt of social benefit *Needy elderly people = elderly people (65+) whose income is below 60% of the medianincome. Source: Karadeniz, Durusoy, 2013 (calculated by authors using TÜİK Household Budget Survey 2010 data) One study analyses and criticises the pension reform, from gender equality perspectives (Elveren, 2013). According to the author, the pension system in Turkey is based on a male 8 on 27 October 2013). (Accessed 10

11 Pensions breadwinner and women are described as dependants. Women have been negatively affected by the pension reform in Turkey. The social insurance system does not consider the welfare effects of women's unpaid labour and household production in the society and it covers only 40% of working women. It only provides women with the right to be voluntarily insured (Elveren, 2013:7). The pension reform has offered unaffordable premium conditions for women in the lower strata via a voluntary insurance programme. Thus, the author estimates that new regulations may cause a higher poverty rate among elderly women. With the pension reform, the correlation between pension amounts and contribution is reinforced. It can be detrimental for women who already cannot find decent jobs (Elveren, 2013:7). Thus, there is need for a gender-sensitive social security system in Turkey. A well prepared employment policy especially designed for women should be implemented, in order to increase female employment and access to social security (Elveren, 2013:8). According to the author, if specific measurements that positively discriminate women and increase female labour participation are not taken, the pension reform will have a detrimental impact on the wellbeing of women in the long run (Elveren, 2013:1). According to the Ministry of Labour and Social Security (2013), minimum pensions increased in real terms between 2002 and As can be seen in Table 3, an employee s minimum pension increased by 48%, a tradesman s (self-employed) minimum pension increased by 107.4%, and a farmer s minimum pension increased by 249% in real terms between 2002 and Table 3: Minimum Pension Amounts in TL, Nominal and Real, Rate of Increase of Minimum Pensions (in %), (December 2002-January 2013) Insuree Type December 2002 (TL) January 2013 (TL) Nominal Rate of Increase Real Rate of Increase Employee 257,1 922, % 48% Casual Agricultural Employee 216,3 831, % 58.60% Tradesman (Selfemployed) 148,7 747, % % Farmer 65,8 558, % % Civil Servant 376,6 1,118, % 22.50% Source: ÇSGB 2013/a: 33 The social insurance system excludes some workers such as low-income craftsmen and tradesmen, farmers and causal agricultural workers (Karadeniz, 2012). If they fail to register with the social insurance system now, they will probably fall under the social assistance system in the future. According to the TUIK Income and Life Condition Survey (2012), high income groups (fourth and fifth) receive the majority of pensions and survivor benefits. While 43.6% of pension and survivor benefit recipients are in the top income group (fifth quintile), only 2.4% are in the first quintile. Compared to pensions, other social transfers are distributed more equally (see Table 4). 11

12 Pensions Table 4: Quintiles ordered by equalized household disposable income and distribution of annual incomes by types of social transfers, 2012* First 20% Second 20% Third 20% Fourth 20% Fifth20% Social transfers Pensions and survivor benefits Other social transfers * "When the individuals are sorted in ascending order by equivalised household disposable income and divided into 5 parts, the bottom income group is defined as the first quintile and the top income group is defined as the last quintile. Source: TUIK Income and Life Condition Survey, 2012 There have been early retirement demands from employees who started to work before the first pension reform in 1999 and who have been affected by the pension reform, as their retirement age has gradually increased. Thus, although they have completed the necessary contributory periods, they now also have to work until they reach a higher retirement age.in Turkey, the social assistance system has a fragmented structure and applies different poverty thresholds for each social aid. Thus, the demands have been sparked by both insecurity in terms of potential unemployment in the future and lack of an effective and regular social assistance system, which leads people to perceive early retirement as a form of income security (Arıcı, 2013). The government, however, rejects any demands. Moreover, the de facto unemployment insurance coverage is limited. The unemployment insurance system only covers employees. The eligibility criteria of unemployment allowance are harsh. 9 It is estimated that only14.5% of unemployed persons are eligible for unemployment allowance (Mütevellioglu, 2013:183) Sustainability Pension expenditures have increased from 7.9% in 2012 to 8.3 % of GDP in The main reasons for the rise in pension expenditures have been a rise in the inflation rate and the corresponding adjustment of pension amounts (KB, 2013/b:52) 10 On the other hand, social security contribution revenue has increased due to an increase in registered employment. The financial deficit has decreased from 1.58% in 2012 to 1.30 % of the GDP in 2013 (excluding government contributions). However, the budget transfer (including government contributions) to SGK has increased from 4.5 % in 2012 to 4.6 % of GDP in 2013 (KB; 2013/b: 69) An unemployed person must have at least 600 days of contributions in the last three years before unemployment, including within the last 120 days. The unemployment benefit duration can varybetween six to ten months, depending on contribution periods (see Law:no:4447). Pension expenditure is an estimates for 2013, pension expenditures includes unemployment benefit as well as SGK expenditures except health expenditures (KB; 2013/b: 53) Contribution revenues include health insurance contributions. Thus, the financial deficit rates cannot be seperated by pension and health insurance deficits. 12

13 Social Security Deficits as Share of GDP asisp country document update 2014 Turkey Pensions There are two main papers about pension projections in the reporting period. The first of them was a forecast by the SGK (Sevinc, 2013). According to this forecast, the social security budget deficits will decline to below 1% of GDP by 2030 if state contributions are excluded. This figure was 2.5% if state contributions were included. Figure 2 The Social Security Deficits as Share of GDP (%) ( ) 4,5 4 3,5 3 2,5 2 1,5 1 0,5 0 4,2 2,9 Source: SGK in Sevinç, 2013:17 3 1,3 3,1 1,5 2,6 2,5 1, Years 0,9 Including Government Contribution Excepting Goverment Contribution The second paper (Alper, et al., 2012) forecast the social security (pension) income/expenditure compensation rate until2050. According to the authors, contribution incomes will increase more rapidly than pension expenditures until 2018, thanks to the pension reforms which were realized in 1999 and 2008 (Alper, et al., 2012: , Alper, 2013:37). Thus, compensation rates (income/expenditure) will recover until After 2018, the income/expenditure compensation rate will decrease, and by2045, the positive impact of pension reforms will come to an end (Alper, 2013:37). The new pension formula s effect of low pension benefit will be seen by approx.2040 (Alper, et al., 2012: ). The minimum pension amounts decreased from 70% of minimum wage to 35% of insurees average wage in 1999 with Law Number The accrual rate was decreased in 2008 from 3% to 2% per year. The replacement rate has decreased since The reform has affected employees who started to work before As long as they work, their prospective pension amounts will reduce (Kurt, 2011, Karadeniz, 2012, Kızılot, 2013/a). Thus, we estimate that many employees who started to work in the 1980s will either exit the labour market or work as unregistered in the future to avoid negative effects on their pension levels. The accrual rate has a discouraging effect for older workers. As Table 5 shows, the female labour participation rate increased by nearly 5% between 2008 and This is a positive development in terms of sustainability of the pension scheme. However, in the female age group witnesses the highest increase. In this group, the employment rate increased from 26.8% in 2008 to 38.5% in We estimate that active labour market policies which have been implemented within the last three years, such as contribution incentives, workfare and vocational training programmes, have had a positive effects on female employment rates in Turkey. Since 2009, Turkey has implemented active labour market policies to cope with unemployment and to ensure an increase in especially 13

14 Pensions women employment ratio. Nearly 1.5 million persons have participated in these programmes between 2009 and % of total participants in these programmes are women. The women participation ratios in vocational training and entrepreneurship programmes are 59% and 47% respectively (Karadeniz, et al., 2014). On the other hand we estimate that home care services are financed by the ASPB and health care reform have a positive effect on female employment (see section 2 and section 3). Table 5: Employment Rates by Age Groups and Gender (%), ( ) Male Overall ,5 64,2 50,8 40,4 19,9 65,2 Female Overall ,5 33,1 25,6 20,1 15,9 6,2 27,1 Source: TÜİK Household Labour Force Survey Database In Turkey, if pensioners return to work, they and/or their employers have to pay social security contributions. The current contribution rate is 15% of their old-age pension amount for self-employed workers. It is 30% of wages for employees, of which 7.5% is the employee's share and 22.5% is employer's share. This contribution is like a tax and it does not raise their pension amounts. Thus, the social security contribution has a negative effect on registered employment. Nearly 1.6 million old-age pensioners carry out unregistered work in Turkey (Karadeniz, 2012/b). Table 6 shows the unregistered employment rates by age groups between 2004 and As it seems, the overall unregistered employment rate decreased from 50% in 2004 to 37.6% in In order to prevent contribution evasion and to provide compliance in the social security system, cooperation and coordination among social security institutions and related organisations should be ensured, innovative inspection approaches and models should be developed, capacity building of inspectors should be strengthened, as well as participative and self-control mechanisms in the inspection systems should be established (Özsuca, Gökbayrak, 2013). 14

15 Pensions Table 6: Unregistered Employment Rates by Age Groups (%), ( ) Age Groups Difference between 2004 and Overall Source: TÜİK Household Labour Force Survey Database ( ) Private pensions The private pension system coverage is limited in Turkey and only covers middle and highincome groups having the financial capacity to save. However, the private pension scheme was reformed in June A new law now stipulates state contribution matching, which was implemented on the 1 st of January 2013 to replace the application of tax deduction. It covers all persons, whether they are taxpayers or not. Since the reform, the number of contributors has increased rapidly from 3.1 million in January 2013 to nearly 4.3 million persons by March 2014(EGM, 2014). With the assumption that everybody paying premiums to individual pension funds also pays premiums to the public social insurance system, the rate of people additionally insured within the private pension schemes increased from 15.1% in 2011 to 21.8% in December 2013 (See Table 7). We estimate that private scheme contributors will increase over the coming years as a result of the new state contribution matching system. The cost of the reform for the State is estimated TL billion (nearly 0. 5% of the state budget) for However, fund management and administrative fees are still very high compared to other countries, in spite of the recent decrease as part of the last private pension reform. The returns of the private pension plans are lower than other investment tools. Thus, private pension companies should aim at decreasing their administrative costs in order to increase participation in the system (Ozel, Yalcın, 2013) accessed on 29 November

16 Pensions Table 7: Years Private and Public Pension Scheme Contributors and Funding Amount per Participant (TL) in Private Pension Scheme Private Pension Schemes 'Contributors (A) Public Pension Schemes 'Contributors (B) (A/B) in % Funding amount per participant (TL) in Private Pension Scheme ,696 13,156, , ,073,650 14,124, , ,457,704 14,763, , ,745,354 15,041, , ,987,940 15,096, , ,281,478 16,196, , ,641,843 17,483, , ,128,130 18,352, , * 4,126,956 18,886, ,020 * Private pension scheme data is for December of 2013 and public pension scheme scontributors is for December Source: EGM, 2014, SGK, 2013/b, Karadeniz, 2012 Figure 3 indexes the number of contributors to the private schemes and the funding amount per participant (2004=100). It is evident that, despite the positive developments in the number of private pension scheme contributors, the funding amount per participant is still low. Figure 3: Private Scheme Contributors and Funding Amount per Participant as Index (2004=100) Source: author s own calculations using EGM data Contributors numbers (2004=100) Funding amount per participant (2004=100) 16

17 Pensions As Table 8shows, the fund s total net assets share in government bonds and bills is nearly 54% in The fund s total net assets share in stocks increased to 7.12% in 2012, from 6.29% in 2011 (EGM, 2013). The stocks share had the biggest annual return in 2012 (53.36%). Table 8: The Share of Fund Group Net Asset Value in the Total and Annual Return of 2012 Fund Groups The Share of Fund Group Net Asset Value in the Total (%) Annual Return of 2012*(%) Government Bonds and Bills (TL) Liquid Flexible Balanced Stocks Government Bonds and Bills (Foreign Currency) International * Returns are weighted through daily net asset values. The funds offered to public in 2012 are excluded from the calculations. Source: EGM, 2013: Summary Turkey has implemented eight different social security contribution reduction programmes in order to stimulate both labour market participation and investment since The most widely utilised programme is the general contribution incentives programme. 5% of the total employer s share of the pension contributions (employer s contribution is 11% of wages) are financed by the state budget. This represents a 25% reduction of the contribution costs for employers. The main criteria for employers eligibility are regular payment of contributions and not employing uninsured employees (Law Number 5510). The aim of the incentives programme is to cause an increase in both registered employment and regular payment of contributions. It is estimated that the contribution collection rate increased from 80% in 2008 to 92% in 2012 as a result of this incentives programme (Mehmet Bulut, SGK, Former Head of Contribution Collection Department, and Personal Communication on 26 October, 2013). 68% of all workplaces benefitted from this programme in 2012 (Kabakçı Karadeniz, Karadeniz, 2013). The second important incentives programme is aimed at increasing employment rates of both young unemployed males aged and unemployed females aged over 18. If an employer employs an unemployed person from these two groups as an additional employee, the total employer s share of social security contributions will be paid by the Unemployment Insurance Fund. The incentive period is up to four years, depending on whether unemployed persons register with the Employment Agency ISKUR or not and on their level of education (Law Number 4447, temporary article 10). 6% of all workplaces benefitted from this programme in 2012 (Kabakçı Karadeniz, Karadeniz, 2013). The third contribution incentive programme worth mentioning is related to the Research Development Investment. Half of the employer s share of contributions is financed by the Ministry of Finance (Law Number 5746,Article: 3). As an addition to the scope of the new investment incentives package, the share of employer s contribution is financed by the Ministry of Economy for priority investments (Law Number 5510, adding article 2). It came into effect at the beginning of 2012 and it will run until

18 Pensions One of the biggest problems in respect of social insurance financing is undeclared work, which causes contribution evasion, in spite of the positive improvements in this field. Unregistered employment decreased from 50% in 2004 to 37.6% in 2013 (See table 6), thanks to both economic growth and social security reforms. It is considered that various reforms such as contribution incentives, reforming the inspection system, reducing bureaucracy, as well as increasing coordination and cooperation among public institutions have led to a decrease in both unregistered employment and contribution evasion (Karadeniz, 2012). The following measures need to be adopted in order to increase pension scheme effectiveness and sustainability: 1- Promoting older employment: The accrual rate should be increased gradually after the age of 55 every five years to raise the labour participation rate of older people. Active ageing policies which include re-training of older workers should be implemented. Social security contributions which are taken from pensions of working pensioners should be abolished, so that the registered employment rate can increase for older workers. Moreover, a new flexible pension scheme programme which combines work and pension should be developed. 2- Increasing female employment rate: The female employment rate should be supported and increased. 3- Increasing registered employment and preventing contribution evasion: Policies promoting registered employment should be continued. In particular, the under declaration of wages should be prevented. 4- Preventing early retirement demands: The social assistance system should be reformed and unified under a single roof. A minimum income guarantee, financed by taxes, should be established. Unemployment insurance (de-facto) coverage should be extended and the entitlement criteria of unemployment benefits should be simplified. A severance pay fund should be established, so that employees who exit the labour market in their fifties can have income security until they reach the official retirement age without having to take early retirement Reform debates The most important publication about pension reforms is the 10 th Development Plan (for ). According to the plan, reforms will be realised as follows (KB, 2013/a): 1- The parameters used for the calculation of pensions will be regulated to encourage a longer working life, in order to recover the actuarial balance of insuree/retiree ratio 2- In order to cope with unregistered employment and contribution evasion, inspection mechanisms, coordination, IT infrastructure and awareness campaigns will be developed. 3- Social security legislation will be simplified and the bureaucratic formalities which estrange people from the social security system will be reduced. 4- The awareness of the rights and obligations of persons in respect of social security and the awareness of access channels to social security programmes will be provided. Moreover, the accessibility of social security channels will be increased. The 2014 Yearly Development Plan also contains reform efforts concerning the pension schemes. 18

19 Pensions 1- The pension accrual rates will be regulated in order to promote longer working life (KB, 2013/b:143) 2- Another measure is related to coping with unregistered employment and increasing contribution collection in The employers who employ unregistered employees will be banned from public tenders (KB, 2013/b: 172). The data sharing will be extended among the institutions to prevent unregistered employment and risk based inspection will be promoted. Automatic electronic encashment will be implemented to increase the contribution collection ratio. An agreement will be made between banks and SGK by end of (KB, 2013/b: 143). 3- Administrative and fund management fees in the private pension scheme will be decreased and their average returns will be converged to international levels in order to promote national savings by end of the 2014(KB; 2013/b: 162). There is further debate about the severance payment fund. According to the Labour Law, employees currently have the right to severance pay in case of dismissal, resignation for military services, marriage, retirement, and completion of pension contributory periods. But there have been some problems about severance pay, especially in SMEs during times of economic crises, bankruptcy, etc. It is estimated that roughly 10% of employees are entitled to severance pay (ÇSGB, 2013/b). The Turkish government has planned to create a severance payment fund for two years. Both trade unions and employers organisations have opposed this plan. However, if the severance pay fund is established, savings for retirement will increase and the labour relations conflict will be solved. During the reporting period The EU Commission published both 2012 and 2013 reports. According to the European Commission s Progress Report (2012: 66), there has been some positive progress in the field of social protection between May 2011 and May 2012, such as increasing the number of insurees by 9%. However, in order to cope with the deficit of the pension system, efforts need to be reinforced: active ageing policies should be implemented, undeclared workers should be registered, under declaration of salaries should be prevented, and the efficiency of the social security system should be boosted (EC, 2012:66). In October 2013, the European Commission s Progress Report (2013) was published. According to the new report, the female employment rate is still too low in spite of the upward trend in recent years. The state contribution to social security premiums (contribution incentive) is causing positive results for female employment, as well as for reducing undeclared work (EU; 2013:40). A decreasing trend about unregistered employment continued in the non-agricultural sector. SGK continued its efforts to cope with undeclared work. The number of the registered employees (insured) increased by 1 million in However, under declaration of salaries is still a problem. Besides, the registration of part time and domestic workers needs to be improved (EC; 2013:40) The ratio between the number of insurees contributing to pension schemes and pensioners number increased. Thus the financial incentives launched in order to promote complementary private pension schemes showed first effects. However, the social security system faces financial deficits that are caused by increasing pension and health expenditures. The active ageing policies to complement efforts in the field of social security are not created (EC; 2013:41). The Pre-Accession Economic Programme ( ) was published in January According to the programme, the restructuring of the contribution debts (partly contribution amnesties) which threaten the actuarial balance of the social security system will not be implemented except for exceptional circumstances such as economic crises and natural 19

20 Pensions disasters (Republic of Turkey, Pre-Accession Economic Programme, 2014:41). Besides, work on the reform process within the SGK continues in order to establish financial sustainability and to supply quality services with effective inspection mechanisms. In this context, projects for operations covering all social insurance branches are under way. (Republic of Turkey, Pre- Accession Economic Programme, 2014:80). Increase in female employment and decrease in unregistered employment are the two most important factors in terms of both promoting social inclusion and ensuring sustainable pension schemes in Turkey. In another scientific report, the authors recommend: Firstly to increase the labour participation rate through the promotion of female and youth employment and secondly, to reduce undeclared work. The development of new policies is particularly needed in order to register youth, female and casual agricultural workers (Alper, et al., 2012:118). In this context, the Pre-accession Programme (2014:71) emphasises the importance of flexible employment types such as tele-working, job sharing and home based working. According to the report, flexible employment types need to be encouraged and embedded into the social security system. Some reforms will be realized in the next terms as following: 1- The regulations ensuring the balance between working and family life will enter into effect. The flexible employment types facilitating women employment will be promoted. 2- The severance payment fund will be established. The employees vested rights and the competition power of the enterprises will be protected. 3- The ISKUR (Turkish Employment Institution) will be strengthened in terms of the infrastructure and qualified staff. The İSKURs job and career counselling services will be extended and activated. 4- The activities of the private employment agencies will be diversified. The legislation about the temporary agency work will be completed. 20

21 Health care 3 Health care 3.1 System description Major reforms that shaped the current system In Turkey, the institutions and the financing methods of the health care sector had only a fragmented structure before The accession of the health services was difficult and was not equal. In 2003, 32.1 % of the population was paying for health services out of their own pocket (Karadeniz, 2011/a). The Turkish Government launched the Health Transformation Programme in Due to the Health Transformation Programme (Karadeniz, 2011/a, 2012/a): 1- The general health insurance system was established in 2008 and it was extended to the whole population in The entire population has access to standardised, equal and quality health services. 2- The family physicians system was extended to cover the entire country in The numbers of physicians and nurses increased. 3- The public health expenditures increased from 2002 to 2012 (see Table.10). The out of pocket payments decreased and satisfaction with health services increased during to reform process. 4- The Ministry of Health was restructured and new institutions were founded in In order to use the sources as efficiently and effectively as possible, the new Public Hospital Institution established the Public Hospital Unions in the provinces. 5- The SGK gained monopsony power to purchase and reimburse health care services through General Health Insurance (Tatar, et.al. 2011:74) System characteristics The Turkish general health insurance system covers everybody, with a few exceptions, and came into effect on 1 October The general health insurance is financed by premiums. The premiums are collected by the General Directorate of Social Insurance Contribution of the SGK. The General Directorate of General Health Insurance purchases the health services. It does provide its own health services, which means that they have to be purchased from external health services institutions (Tuncay, Ekmekçi, 2009: 404). Health services can be purchased at a lump-sum price from health service providers. (Law Number 5510, Article 73). The price of the health services provided and the price of expenditures for travelling, beds and daily wages paid by the social security institution are determined by the Commission of Health Service Pricing (Law Number 5510, Article 72). The services available through the general health insurance are listed below (Law Number 5510, Article 63): Protective health services include 1- Outpatient and inpatient care 2- Maternity care (outpatient and inpatient) 3- Dental care (outpatient and inpatient) 4- Artificial insemination treatment (in-vitro fertilisation) 5- Within the scope of the provided treatment methods and services are included: blood and blood products, vaccines, medicines, prostheses, medical equipment for 21