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The Turkish Pension System: Further Reforms to Help Solve the Informality Problem

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  • Anne-Marie Brook
  • Edward R. Whitehouse

Abstract

Recent social security reform has significantly improved the long-run sustainability of the pension system. However, the pension system continues to serve as an important barrier to a more rapid expansion of the formalsector economy in two ways. First, early-retirement incentives (including severance payments) continue to push many incumbent formal sector workers into the informal sector, often at ages as young as 40-45. While new labour force entrants face a much higher retirement age, policies for incumbents are fiscally expensive, inequitable, and serve to swell the ranks of the informal sector. Second, even when the transition to the new pension rules is complete, net replacement rates will remain very high by OECD standards, requiring high social security contribution rates that make it too expensive for firms to employ low-skilled labour in the formal sector. Thus, further pension reform is one of the keys to overcoming Turkey's economic duality. Finally, since the pension system does not cover the informal sector, it does little to alleviate poverty among the wider population of older people. This paper discusses a number of reforms that would increase the retirement age, reduce inter-generational inequities, and permit a significant cut in the tax wedge on labour, while better addressing old-age poverty concerns at all levels of income. This Working Paper relates to the 2006 Economic Survey of Turkey (www.oecd.org/eco/surveys/turkey). Le système des retraites en Turquie : Les réformes supplémentaires pour aider à résoudre le problème de l'informalité La récente réforme de la sécurité sociale a amélioré largement la viabilité à long terme du système de retraite. Cependant, la structure de ce dernier reste un important obstacle à une expansion plus rapide de l'économie formelle, pour deux raisons. Premièrement, du fait des incitations à une retraite anticipée (telles que les indemnités de départ), de nombreux travailleurs du secteur formel continuent à rejoindre le secteur informel, souvent à un jeune âge comme 40-45 ans. Alors que les nouveaux entrants dans le marché du travail prendront leur retraite à un âge bien plus élevé, les politiques concernant les travailleurs déjà actifs sont coûteuses pour les finances publiques, ne sont pas équitables et nourrissent le secteur informel. Deuxièmement, même lorsque le passage aux nouvelles règles régissant les retraites sera achevé, les taux de remplacement nets seront encore très généreux par rapport aux niveaux observés dans la zone OCDE, avec des taux de cotisation élevés qui dissuadent les entreprises du secteur formel d'employer une main-d'oeuvre peu qualifiée. En conséquence, la poursuite de la réforme des retraites est fondamentale pour surmonter ce dualisme économique. Enfin, parce qu'il ne couvre pas le secteur informel, le système de retraite ne contribue guère à atténuer la pauvreté au sein de la population âgée. Ce chapitre examine plusieurs réformes qui repousseraient l'âge de la retraite, réduiraient les inégalités intergénérationnelles et feraient diminuer significativement le coin fiscal sur le travail, tout en répondant mieux aux préoccupations suscitées par la pauvreté des personnes âgées à tous les niveaux de revenu. Ce Document de travail se rapporte à l’Étude économique de la Turquie 2006 (www.oecd.org/eco/etudes/turquie).

Suggested Citation

  • Anne-Marie Brook & Edward R. Whitehouse, 2006. "The Turkish Pension System: Further Reforms to Help Solve the Informality Problem," OECD Economics Department Working Papers 529, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:529-en
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    File URL: http://dx.doi.org/10.1787/363386547648
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    Cited by:

    1. Mihai Macovei, 2009. "Growth and economic crises in Turkey: leaving behind a turbulent past?," European Economy - Economic Papers 2008 - 2015 386, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

    More about this item

    Keywords

    early retirement; informal economy; pensions; retraite anticipée; secteur informel; système de retraite; Turkey; Turquie;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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