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The following OECD assessment and recommendations summarise Chapter 4 of the Economic Survey of Turkey published on 18 October 2006.
Additional pension reform would increase employment in the formal sector
Recent social security reform has significantly improved the long-run sustainability of the pension system. However, the transition to the new pension parameters is slow and early-retirement incentives (not all of which are directly related to the pension system) will continue to push many middle-aged qualified workers into the informal sector. Moreover, even once the new parameters are fully phased in, net replacement rates of pensions will remain very high by comparison with other OECD countries, requiring high social security contribution rates, which directly contribute to the high labour tax wedge mentioned above. The next steps for pension reform should involve i) a significant cut in social security contribution rates to make it more affordable for firms to employ low-skilled workers in the formal sector, and ii) a package of reforms to improve the incentives for middle-aged people to remain in the formal sector labour force. This package will require:
A cut in the net replacement rate, which could be brought about by taxing pension income, and by charging pensioners a health insurance premium.
The introduction of an actuarially equivalent reduction in the pension benefit of anyone who chooses to retire younger than the normal retirement age of 60 for men and 58 for women.
The removal of retiring workers’ entitlement to severance payments.
An accelerated increase in the formal-sector retirement age to 65.
Improved enforcement of social security registration and tax compliance among middle-aged pensioners.
Deficits in the pension system
Per cent of GNP
Source: Social Security Institutions.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Turkey 2006 is available from:
For further information please contact the Turkey Desk at the OECD Economics Department at firstname.lastname@example.org. The OECD Secretariat's report was prepared by Rauf Gonenc, Anne-Marie Brook, Ugur Ciplak, Gökhan Yilmaz and Rina Bhattacharya under the supervision of Wilhem Leibfritz.
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