The Initiatives on Financial Awareness
&
Financial Education
Turkish Private Pension System
Mert Demir, Ph.D.,
Pension Monitoring Center, Turkey
OECD-Banque du Liban International Conference on Financial
Education: Building Financially Empowered Individuals
20-21 October 2010, Beirut, Lebanon
Agenda
OECD definitions on the topic
Regulations about disclosure in Turkey
Joint initiatives of pension companies and public
authorities
Campaigns of the Communication Committee
Information provided through our web site
Some findings from the surveys
2/28
Why Important?
Changing social & demographic parameters
The rise of defined contribution plans
The growing importance of private pension as a source
of retirement
The involvement of individual investment decisions,
individual responsibility on pension benefit
Long-term & complex nature of the pension products
3/28
Financial Education
OECD Definition
“Financial education is the process by which financial consumers/ investors
improve their understanding of financial products and concepts and, through
information, instruction and/or objective advice, develop the skills and
concepts and, through information, instruction and/or objective advice,
develop the skills and confidence to become aware of (financial) risks and
opportunities, to make informed choices, to know where to go for help, and to
take other effective actions to improve their financial well-being and
protection “
Main Elements from the Definition
Improve understanding of financial products and concepts
Development of skill and confidence
–To become aware of risks and opportunities
–To make informed choices
–To know where to go for help
–To take other effective actions to improve their financial well-being
4/28
OECD Recommendations
OECD Recommendation on Good Practices for Financial Education
Relating to Private Pensions
Be encouraged generally, whether as part of the wider financial education
effort or through distinct programmes.
Help to promote understanding of the changing retirement environment,
The need for long-term savings, and of investment products.
Governments and other public authorities, social partners, providers of
products, intermediaries must have important roles in promoting financial
education.
Develop methods for the assessment of the level of financial literacy
and capability of population and of more vulnerable groups in
relation to retirement.
Develop criteria to assess the effectiveness of measures and programmes
aimed at enhancing financial literacy related to pensions
Using of all media available, specific WEB sites, the use of financial
calculators etc. should be encouraged.
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Turkish Case: Legal Regulations
Improvements in Disclosure Requirements
Introduced in 2008
Information Forms (1 page)
– Entrance Information Form
– Transfer Information Form
– Withdrawal Information Form
Key Objective
To prevent mis-selling cases & passive behaviours of
participants
6/28
Joint Efforts
Communication Committee
Representatives from pension companies & Pension
Monitoring Center
Partnership between public & private sector
Approved budget and strategy
Key Objective
To increase the public awareness, provoke people to
think for their retirement, emphasize the importance of
long-term pension planning
7/28
Activities of Communication Committee (1)
2005 – 2009
Press briefings
– Inform and educate the publicists about the main characteristics
of the system.
TV programmes, radio spots, ads in newspaper, TV
commercials
Special WEB site
8/28
Activities of Communication Committee (2)
“The conditions can change, but
your pension saving is always
safe in private pension
system…”
“Your pension benefit is the sum of your little savings…”
TV Commercial
9/28
Activities of Communication Committee (3)
Publicity Campaign in 2009
Key Objective
To underline the long-term nature of the system; to remind
that short term volatility should not affect long term saving
decisions
The Channels that were used
− 18 television channels
Reached at least once the 91% of the target group and viewed at
least once by approximately 18 million people.
− 20 daily newspapers
− 20 weekly magazines
− 50 movie theatres
10/28
TV Commercial
Click to view
11/28
10.2003
12.2003
02.2004
04.2004
06.2004
08.2004
10.2004
12.2004
02.2005
04.2005
06.2005
08.2005
10.2005
12.2005
02.2006
04.2006
06.2006
08.2006
10.2006
12.2006
02.2007
04.2007
06.2007
08.2007
10.2007
12.2007
02.2008
04.2008
06.2008
08.2008
10.2008
12.2008
02.2009
04.2009
06.2009
08.2009
10.2009
12.2009
New Contracts
Activities of Communication Committee (4)
The Effects of the Campaign in 2009
The Number of New Contracts
70.000
60.000
50.000
40.000
30.000
20.000
10.000
0
Month of Entrance
12/28
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.1
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Activities of Communication Committee (5)
The Effects of The Campaign in 2009
99,2
BADE
99,0
98,8
98,6
98,4
98,2
Lowest value
in history
98,0
BADE: Monthly continuation rate of contracts in private pension system
13/28
WEB Site (1)
Summarized and simplified information about the rules,
regulations
– Fees, rights, obligations…
Information about the retirement options
– Annuities
– Programmed withdrawal
Information about tax advantage
– Legal limits of advantage
– How to use
emeklilik.egm.org.tr
14/28
WEB Site (2)
Calculation Tools
Tax Advantage Calculator
– Interactive
– Aimed to help to participants to
maximize their tax advantage
– Updated instantly to reflect
regulations and limits
15/28
WEB Site (3)
Calculation Tools (Accumulation Phase)
Projected Pension Benefit Calculator
– “How much should I contribute?”
– Uses the approved rate of return by Treasury
16/28
WEB Site (4)
Calculation Tools (Decumulation Phase)
Calculations about Different Retirement Options
– Interactive
– Use of approved rate of return by Treasury
– Monthly projected pension benefit from programmed
withdrawals
– Analysis about different annuity products
17/28
WEB Site (5)
Statistics
Site opened on August 17th, 2009
Unique Visits per Month
8,000
7,500
7,000
6,500
6,000
5,500
5,000
4,500
4,000
3,500
3,000
Web Site Stats 9/2009 - 9/2010
Number of visits
Number of pages shown
66.084
285.195
Page views per visit
4,32
Average time spent
04:15
Percentage of new visits
54,76%
Sept Oct Nov Dec Jan Feb Mar Apr May June July Aug
2009 2009 2009 2009 2010 2010 2010 2010 2010 2010 2010 2010
18/28
WEB Site (6)
Special web site devoted to tax advantage
19/28
Surveys by Pension Monitoring Center (1)
Communication Center
Functions
To make surveys by telephone calls
– to assess the level of information of the participants about the
system
– to evaluate the quality and quantity of information offered to
participants by pension companies
To give information to the participants if necessary
To analyze and report relevant results to the parties
(Undersecretariat of Treasury, companies, public)
The Main Objective
To assess needs and gaps with regard to disclosure
20/28
Surveys by Pension Monitoring Center (2)
Objectives
Survey on Newcomers
measure the level of information given to newcomers
check that the information provided to the participant is
properly understood
Survey on Withdrawn Participants
survey expectations from the system
find out reasons behind withdrawals
check level of information provided by sales agents
Usage of Tax Incentives
measure the percentage of participants in the system who
benefit from tax advantage
are there differences among pension companies
21/28
Some Results from Surveys (1)
How much time did you spend to
decide for a pension contract?
Where did you get information about
the system?
67%
Immediately
Bank Officer
41%
Direct sales person
15%
In a few days
40%
My family, friends…
15%
7%
Internet
In a few months
9%
Agency
Newspaper
In a few weeks
5%
3%
8%
Call center of pension company
1%
I did not get any information
1%
22/28
Some Results from Surveys (2)
Why did you leave the system?
I needed money
I was misinformed
I lost confidence in the system
71.9%
5.1%
2.9%
I was discomfort with long term
nature of the system
2.0%
Others (low returns, unhappiness
with the pension company)
18.1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Participants use their pension assets to finance short-term needs
23/28
Some Results from Surveys (3)
Why did you buy a pension contract?
52.0%
I wanted to save money
44.1%
I thought I would need supplementary pension benefit
I bought upon recommendation
5.2%
I saw it as a safe investment instrument
4.0%
I bought during taking a bank credit (tied-selling)
1.4%
I just tried
0.9%
I wanted to use tax advantage
0.9%
I bought as a short-term investment
0.2%
0%
10%
20%
30%
40%
50%
60%
Participants see pension as a way to save money, for retirement?
24/28
Some Results from Surveys
(4)
Do You Use Tax Advantage?
42% of the participants are not aware of the tax advantage
25/28
Some Results from Surveys (5)
Have You Read The Entrance
Information Form?
Have You Been Told
About Your Rights?
42% of the newcomers have not even read the one-page information
form, but 57% of the newcomers know their rights
26/28
2009.12
2009.11
2009.10
2009.09
2009.08
2009.07
2009.06
2009.05
2009.04
2009.03
2009.02
2009.01
2008.12
2008.11
2008.10
2008.09
2008.08
2008.07
2008.06
2008.05
2008.04
2008.03
2008.02
2008.01
The ratio of contracts whih have used the right of portfolio
change (%)
Lack of Interest on Using Rights
The Raito of Contracts Which Have Used The Right of Portfolio Change (%)
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Ratio of contracts which exercised their right of portfolio change is
below 1%
27/28
Long Way to Go…
• Main Problem: short-term investment
vision
• Supplying documents is not enough
• Financial education at early ages is necessary
• Close cooperation between public authorities
• Be part of a national strategy
28/28