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 October 2010, Beirut, Lebanon

2/28 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

3/28 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

4/28 Financial Education “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 OECD Definition

5/28 OECD Recommendations 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. OECD Recommendation on Good Practices for Financial Education Relating to Private Pensions

6/28 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

7/28 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

8/28 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

9/28 Activities of Communication Committee (2) “Your pension benefit is the sum of your little savings…” “The conditions can change, but your pension saving is always safe in private pension system…” TV Commercial

10/28 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 Activities of Communication Committee (3)

11/28 TV Commercial Click to view

12/28 The Effects of the Campaign in 2009 Activities of Communication Committee (4)

13/28 Activities of Communication Committee (5) The Effects of The Campaign in 2009 BADE: Monthly continuation rate of contracts in private pension system Lowest value in history

14/28 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

15/28 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

16/28 WEB Site (3) Calculation Tools (Accumulation Phase) Projected Pension Benefit Calculator –“How much should I contribute?” –Uses the approved rate of return by Treasury

17/28 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

18/28 WEB Site (5) Statistics Site opened on August 17th, 2009 Web Site Stats 9/ /2010 Number of visits Number of pages shown Page views per visit4,32 Average time spent04:15 Percentage of new visits54,76%

19/28 WEB Site (6) Special web site devoted to tax advantage

20/28 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

21/28 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 Surveys by Pension Monitoring Center (2) Objectives

22/28 Some Results from Surveys (1) How much time did you spend to decide for a pension contract decide for a pension contract? Where did you get information about the system?

23/28 Some Results from Surveys (2) Why did you leave the system? Participants use their pension assets to finance short-term needs

24/28 Some Results from Surveys (3) Why did you buy a pension contract? Participants see pension as a way to save money, for retirement?

25/28 Some Results from Surveys (4) Do You Use Tax Advantage? 42% of the participants are not aware of the tax advantage

26/28 Some Results from Surveys (5) Have You Read The Entrance Information Form? Information Form? 42% of the newcomers have not even read the one-page information form, but 57% of the newcomers know their rights Have You Been Told About Your Rights?

27/28 Lack of Interest on Using Rights Ratio of contracts which exercised their right of portfolio change is below 1%

28/28 Long Way to Go… Main Problem: short-term investment visionMain Problem: short-term investment vision Supplying documents is not enoughSupplying documents is 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