The Initiatives on Financial AwarenessThe Initiatives on Financial Awareness & &

Financial Education Financial Education

Turkish Private Pension SystemTurkish 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

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AgendaAgenda

OECD definitions on the topicOECD definitions on the topic

Regulations about disclosureRegulations about disclosure in Turkey in Turkey

Joint initiatives of pension companies and publicJoint initiatives of pension companies and public authoritiesauthorities

Campaigns of Campaigns of the the Communication CommitteeCommunication Committee

Information provided through Information provided through our web our web sitesite

Some findings from the surveysSome findings from the surveys

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Why Important?Why Important?

Changing social & demographic parametersChanging social & demographic parameters

The rise of defined contribution plansThe rise of defined contribution plans

The growing importance of private pension as a source The growing importance of private pension as a source of retirementof retirement

The involvement of individual investment decisions, The involvement of individual investment decisions, individual responsibility on pension benefitindividual responsibility on pension benefit

Long-term & complex nature of the pension productsLong-term & complex nature of the pension products

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Financial EducationFinancial Education

““Financial education is the process by which financial consumers/ investors Financial education is the process by which financial consumers/ investors improve their understanding of financial products andimprove their understanding of financial products and concepts and, through concepts and, through information, instruction and/or objectiveinformation, instruction and/or objective advice, develop the skills and advice, develop the skills and concepts and, concepts and, tthroughhrough information, instruction and/or objective advice, information, instruction and/or objective advice, develop thedevelop the skills andskills and confidence to become aware of (financial) risks and confidence to become aware of (financial) risks and opportunities,opportunities, to make informed choices, to know where to go for help, and toto make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being atake other effective actions to improve their financial well-being and nd pprotectionrotection “ “

Main Elements from the DefinitionMain Elements from the DefinitionImprove understanding of financial products and conceptsImprove understanding of financial products and conceptsDevelopment of skill and confidenceDevelopment of skill and confidence

–TTo become aware of risks and opportunitieso become aware of risks and opportunities

–To make informed choicesTo make informed choices

–To know where to go for helpTo know where to go for help

–To take other effective actions to improve their financial well-beingTo take other effective actions to improve their financial well-being

OECD DefinitionOECD Definition

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OECD RecommendationOECD Recommendationss

Be encouraged generally, whether as part of the wider financial education Be encouraged generally, whether as part of the wider financial education effort or through distinct programmes. effort or through distinct programmes.

Help to promote understanding of the changing retirementHelp to promote understanding of the changing retirement environment, environment, TheThe need for long-term savings, and of investment products. need for long-term savings, and of investment products.

Governments and other public authorities, social partners, providersGovernments and other public authorities, social partners, providers ofof products, intermediaries must have important roles in promotingproducts, intermediaries must have important roles in promoting financial financial education.education.

Develop methods for the assessment of the level of financial literacyDevelop methods for the assessment of the level of financial literacy and capability of population and of more vulnerable groups inand capability of population and of more vulnerable groups in relation to retirement.relation to retirement.

Develop criteria to assess the effectiveness of measures and programmes Develop criteria to assess the effectiveness of measures and programmes aimed at enhancing financial literacy related to pensionsaimed at enhancing financial literacy related to pensions

Using of all media available, specific WEB sites, the use of financial Using of all media available, specific WEB sites, the use of financial calculators calculators etc.etc. should be encouraged. should be encouraged.

OECD Recommendation on Good Practices for Financial Education OECD Recommendation on Good Practices for Financial Education Relating to Private PensionsRelating to Private Pensions

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Turkish Case: Turkish Case: Legal RegulationsLegal Regulations

Improvements in Disclosure RequirementsImprovements in Disclosure Requirements

Introduced in 2008Introduced in 2008

Information Forms (1 page)Information Forms (1 page)

– Entrance Information FormEntrance Information Form

– Transfer Information FormTransfer Information Form

– Withdrawal Information FormWithdrawal Information Form

Key ObjectiveKey ObjectiveTo prevent misTo prevent mis--selling cases & passiveselling cases & passive behaviours of behaviours of participantsparticipants

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Joint EffortsJoint Efforts

Communication CommitteeCommunication Committee

Representatives from pension companies & Pension Representatives from pension companies & Pension Monitoring CenterMonitoring Center

Partnership between public & private sectorPartnership between public & private sector

Approved budget and strategy Approved budget and strategy

Key ObjectiveKey ObjectiveTo increase the public awareness, provoke people to To increase the public awareness, provoke people to think for their retirement, emphasize think for their retirement, emphasize tthe importance of he importance of long-term pension planninglong-term pension planning

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Activities of Communication Committee Activities of Communication Committee (1)(1)

2005 – 20092005 – 2009

Press briefingsPress briefings– InformInform and educate and educate the publicists about the main characteristics the publicists about the main characteristics

of the system. of the system.

TV programmTV programmees, radio spots, ads in newspapers, radio spots, ads in newspaper, , TV TV commercialscommercials

Special WEB siteSpecial WEB site

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Activities of Communication Committee Activities of Communication Committee ((22))

““Your pension benefit is the sum of your little savings…Your pension benefit is the sum of your little savings…””

““The conditions can change, but The conditions can change, but your pension saving is alwaysyour pension saving is always

ssafe in private pension afe in private pension systemsystem…”…”

TV CommercialTV Commercial

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Publicity Campaign in 2009Publicity Campaign in 2009

Key ObjectiveKey Objective To underline the long-term nature of the system; to remind To underline the long-term nature of the system; to remind that short term volatility should not affect long term saving that short term volatility should not affect long term saving decisionsdecisions

The Channels that were The Channels that were uusedsed− 18 television channels18 television channelsReached at least once the 91% of the target group and viewed at Reached at least once the 91% of the target group and viewed at least once by approximately 18 million people.least once by approximately 18 million people.

− 20 daily newspapers20 daily newspapers

− 20 weekly magazines20 weekly magazines

− 50 movie theatres50 movie theatres

Activities of Communication Committee Activities of Communication Committee (3)(3)

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TV CommercialTV Commercial

Click to view

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The Number of New Contracts

0

10.000

20.000

30.000

40.000

50.000

60.000

70.000

10.2

003

12.2

003

02.2

004

04.2

004

06.2

004

08.2

004

10.2

004

12.2

004

02.2

005

04.2

005

06.2

005

08.2

005

10.2

005

12.2

005

02.2

006

04.2

006

06.2

006

08.2

006

10.2

006

12.2

006

02.2

007

04.2

007

06.2

007

08.2

007

10.2

007

12.2

007

02.2

008

04.2

008

06.2

008

08.2

008

10.2

008

12.2

008

02.2

009

04.2

009

06.2

009

08.2

009

10.2

009

12.2

009

Month of Entrance

New

Co

ntr

acts

The Effects of The Effects of tthe Campaign in 2009he Campaign in 2009

Activities of Communication Committee Activities of Communication Committee (4)(4)

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Activities of Communication Committee Activities of Communication Committee (5)(5)

The Effects of The Campaign in 2009The Effects of The Campaign in 2009

98,0

98,2

98,4

98,6

98,8

99,0

99,2

2007

.01

2007

.02

2007

.03

2007

.04

2007

.05

2007

.06

2007

.07

2007

.08

2007

.09

2007

.10

2007

.11

2007

.12

2008

.01

2008

.02

2008

.03

2008

.04

2008

.05

2008

.06

2008

.07

2008

.08

2008

.09

2008

.10

2008

.11

2008

.12

2009

.01

2009

.02

2009

.03

2009

.04

2009

.05

2009

.06

2009

.07

2009

.08

2009

.09

2009

.10

2009

.11

BADE

BADE: Monthly continuation rate of contracts in private pension system

Lowest value Lowest value in historyin history

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WEB SiteWEB Site (1)(1)

Summarized and simplified information about the rulesSummarized and simplified information about the rules, , regulationregulationss – Fees, rights, obligations…Fees, rights, obligations…

Information about the retirement optionsInformation about the retirement options– AnnuitiesAnnuities– Programmed withdrawalProgrammed withdrawal

Information about tax advantage Information about tax advantage – LLegal limits of advantageegal limits of advantage– HHow to useow to use

emeklilik.egm.org.tremeklilik.egm.org.tr

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WEB Site WEB Site (2)(2)

Calculation ToolsCalculation ToolsTax Advantage Calculator Tax Advantage Calculator – IInteractiventeractive– AAimed to help to participants to imed to help to participants to

maximize their tax advantagemaximize their tax advantage– Updated instantly to reflect Updated instantly to reflect

regulations and limitsregulations and limits

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WEB Site WEB Site (3)(3)

Calculation ToolsCalculation Tools (Accumulation Phase) (Accumulation Phase)

Projected PensionProjected Pension Benefit Benefit Calculator Calculator– ““How much should I contribute?”How much should I contribute?” – Uses the Uses the approved ratapproved rate e of return by Treasuryof return by Treasury

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WEB Site WEB Site (4)(4)

Calculation ToolsCalculation Tools (Decumulation Phase) (Decumulation Phase)

Calculations about Different Retirement Options Calculations about Different Retirement Options – InteractiveInteractive– Use of approved rate of return by TreasuryUse of approved rate of return by Treasury– Monthly Monthly projectedprojected pension benefit from programmed pension benefit from programmed

withdrawals withdrawals – Analysis about different annuitAnalysis about different annuityy products products

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WEB Site WEB Site (5)(5)

StatisticsStatistics

Site opened on August 17th, 2009Site opened on August 17th, 2009

Web Site Stats 9/2009 - 9/2010

Number of visits 66.084

Number of pages shown 285.195

Page views per visit 4,32

Average time spent 04:15

Percentage of new visits 54,76%

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WEB SiteWEB Site (6)(6)

Special web site devoted to tax advantage

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Surveys by Pension Monitoring CenterSurveys by Pension Monitoring Center (1)(1)

Communication CenterCommunication CenterFunctionsFunctions

To make surveys by telephone callsTo make surveys by telephone calls – to assess the level of information of the participants about the to assess the level of information of the participants about the

systemsystem– to evaluate the quality and quantity of information offered to to evaluate the quality and quantity of information offered to

participants by pension companiesparticipants by pension companies

To give information to the participants To give information to the participants if if necessarynecessary

To analyze and report To analyze and report relevant relevant results to theresults to the parties parties ((Undersecretariat of TreasuryUndersecretariat of Treasury, companies, public), companies, public)

The Main The Main ObjectiveObjectiveTo assess needs and gaps with regard to disclosureTo assess needs and gaps with regard to disclosure

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Survey on NewcomersSurvey on Newcomersmeasure the level of information given to newcomersmeasure the level of information given to newcomerscheck that the information provided to the participant is check that the information provided to the participant is properly properly understoodunderstood

Survey on Withdrawn ParticipantsSurvey on Withdrawn Participantssurvey survey expectations from the system expectations from the system find out reasons behind withdrawalsfind out reasons behind withdrawalscheck level of information providedcheck level of information provided by sales agents by sales agents

Usage of Tax IncentivesUsage of Tax Incentivesmeasure the percentage of participants in the system who measure the percentage of participants in the system who benefit from tax advantage benefit from tax advantage are there are there differences differences among among pension companiespension companies

Surveys by Pension Monitoring CenterSurveys by Pension Monitoring Center (2)(2)

ObjectivesObjectives

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SomeSome Results Results from from Surveys Surveys ((11))

How much How much time time did you spend to did you spend to ddecide ecide for for a pension contracta pension contract?

WWhere did you get information about here did you get information about the system?the system?

8%

9%

15%

67%

In a few weeks

In a few months

In a few days

Immediately

1%

1%

3%

5%

7%

15%

40%

41%

I did not get any information

Call center of pension company

Newspaper

Agency

Internet

My family, friends…

Direct sales person

Bank Officer

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SomeSome Results Results from from Surveys Surveys ((22))

Why did you leave the system?Why did you leave the system?

Participants use their pension assets to finance short-term needs Participants use their pension assets to finance short-term needs

71.9%

5.1%

2.9%

2.0%

18.1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Others (low returns, unhappinesswith the pension company)

I was discomfort with long termnature of the system

I lost confidence in the system

I was misinformed

I needed money

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SomeSome Results Results from from SurveysSurveys ((33))

Why did you buy a pension contract?Why did you buy a pension contract?

Participants see pension as a Participants see pension as a wayway to save money, for retirement? to save money, for retirement?

0.2%

0.9%

0.9%

1.4%

4.0%

5.2%

44.1%

52.0%

0% 10% 20% 30% 40% 50% 60%

I bought as a short-term investment

I wanted to use tax advantage

I just tried

I bought during taking a bank credit (tied-selling)

I saw it as a safe investment instrument

I bought upon recommendation

I thought I would need supplementary pension benefit

I wanted to save money

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SomeSome Results Results from from SurveysSurveys ((44))Do You Do You Use TUse Tax Advantage? ax Advantage?

42% of the participants are not aware of the tax 42% of the participants are not aware of the tax advantageadvantage

Yes; 36%

No; 64%

Group Contracts

No; 48%

Yes; 52%

Individual Pension Contracts

Yes; 32%

No; 68%

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SomeSome Results Results from from Surveys Surveys ((55))

Have You Read The EntranceHave You Read The Entrance Information Form?Information Form?

442% of the newcomers 2% of the newcomers have not even have not even read read thethe one-page information one-page information form, form, but 57but 57% of the newcomers % of the newcomers know their rightsknow their rights

Don't Remember; 3%

No; 39%

Yes; 58%

Have You Been Told Have You Been Told About Your Rights?About Your Rights?

No; 36%

Yes; 57%

Don't Remember; 7%

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Lack of Interest on Using RightsLack of Interest on Using Rights

RRatio of contracts which atio of contracts which exercised exercised thetheirir right of portfolio change is right of portfolio change is below 1%below 1%

The Raito of Contracts Which Have Used The Right of Portfolio Change (%)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

2008

.01

2008

.02

2008

.03

2008

.04

2008

.05

2008

.06

2008

.07

2008

.08

2008

.09

2008

.10

2008

.11

2008

.12

2009

.01

2009

.02

2009

.03

2009

.04

2009

.05

2009

.06

2009

.07

2009

.08

2009

.09

2009

.10

2009

.11

2009

.12Th

e ra

tio

of

con

trac

ts w

hih

hav

e u

sed

th

e ri

gh

t o

f p

ort

foli

o

chan

ge

(%)

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Long Way to Go…Long Way to Go…

• Main Problem: Main Problem: short-term investment short-term investment visionvision

• Supplying Supplying documents documents is not enoughis not enough

• Financial education at early ages is necessaryFinancial education at early ages is necessary

• Close cooperation between public authoritiesClose cooperation between public authorities

• Be part of a national strategyBe part of a national strategy