The Initiatives on Financial Awareness & Financial Education Turkish Private Pension System

1. The Initiatives on Financial Awareness & Financial Education Turkish Private Pension System Mert Demir, Ph.D., PensionMonitoringCenter, Turkey OECD-Banque du Liban International Conference on Financial Education: Building Financially Empowered Individuals 20-21 October 2010, Beirut, Lebanon

2. Agenda • OECD definitions on thetopic • Regulations about disclosure in Turkey • Joint initiatives of pension companies and publicauthorities • Campaigns of theCommunication Committee • Information provided through our web site • Some findings from the surveys

3. 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

4. Financial Education OECD Definition “Financial education is the process by which financial consumers/ investors improve their understanding of financial products andconcepts and, through information, instruction and/or objectiveadvice, develop the skills and concepts and, throughinformation, instruction and/or objective advice, develop theskills andconfidence 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

5. 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 retirementenvironment, Theneed for long-term savings, and of investment products. Governments and other public authorities, social partners, providersof products, intermediaries must have important roles in promotingfinancial 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.

6. TurkishCase: 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 & passivebehaviours of participants

7. 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

8. Activities of Communication Committee (1) 2005 – 2009 • Press briefings • Inform and educatethe publicists about the main characteristics of the system. • TV programmes, radio spots, ads in newspaper, TV commercials • Special WEB site

9. 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

10. 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

11. TV Commercial • Click to view

12. Activities of Communication Committee (4) The Effects of the Campaign in 2009

13. Activities of Communication Committee (5) The Effects of The Campaign in 2009 Lowest value in history BADE: Monthly continuation rate of contracts in private pension system

14. 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

15. WEB Site (2) Calculation Tools • Tax Advantage Calculator • Interactive • Aimed to help to participants to maximize their tax advantage • Updatedinstantlytoreflectregulationsandlimits

16. WEB Site (3) • Projected PensionBenefit Calculator • “Howmuchshould I contribute?” • Usestheapproved rate of return by Treasury Calculation Tools (AccumulationPhase)

17. WEB Site (4) Calculation Tools (DecumulationPhase) • 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

18. WEB Site (5) Statistics • Site opened on August 17th, 2009

19. WEB Site(6) • Special web site devoted to tax advantage

20. 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 ifnecessary • To analyze and report relevantresults to theparties (Undersecretariat of Treasury, companies, public) The Main Objective To assess needs and gaps with regard to disclosure

21. 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 properlyunderstood • Survey on WithdrawnParticipants • surveyexpectations from the system • find out reasons behind withdrawals • check level of information providedbysalesagents • Usage of Tax Incentives • measure the percentage of participants in the system who benefit from tax advantage • aretheredifferences amongpension companies

22. Some Results fromSurveys (1) How much time did you spend to decidefora pension contract? Where did you get information about the system?

23. Some Results fromSurveys (2) Why did you leave the system? Participants use their pension assets to finance short-term needs

24. Some Results fromSurveys(3) Why did you buy a pension contract? Participants see pension as a way to save money, for retirement?

25. Some Results fromSurveys(4) Do You Use Tax Advantage? 42% of the participants are not aware of the tax advantage

26. Some Results fromSurveys (5) Have You Read The Entrance Information Form? Have You Been Told About Your Rights? 42% of the newcomers have not evenread theone-page information form, but 57% of the newcomers knowtheirrights

27. Lack of Interest on Using Rights Ratio of contracts which exercisedtheir right of portfolio change is below 1%

28. Long Way to Go… • Main Problem: short-term investment vision • Supplying documentsis not enough • Financial education at early ages is necessary • Close cooperation between public authorities • Be part of a national strategy