Turkey is a country of young retired people. From an economic point of view this is a problem.
The Bahçeşehir University Center for Economic and Social Research (BETAM) recently published two research briefs on this issue using Turkish Statistics Institute (TurkStat) Income and Living Conditions statistics. According to BETAM, the share of retired people in the 45-54 age category was 24.7 percent in 2010; one person out of four aged between 45 and 54 was receiving a pension in 2010. Furthermore, the share of retired people in the 40-44 age category was not negligible at all: 1.8 percent! When my European friends waiting to reach 65 or 67 to retire learn about these young retired people here, they regret not being born in Turkey.
This situation was inherited from the beginning of the 1990s, when the coalition government of the center-right and center-left leaded by Süleyman Demirel eased the conditions for retirement at a time when the average age of retirement was already quite low. Mr. Demirel argued that this would help young generations find jobs. He was strongly supported by workers' unions, whose preferred slogan was, “Stop retirement in the tomb.”
This early retirement system was of course absolutely unsustainable, even in the medium term, in respect to the public sector financial balance. A change was made in 1999 while a severe economic crisis caused by huge macroeconomic imbalances was taking place. The reform was a prerequisite for the International Monetary Fund (IMF) to sign a stand-by agreement. However, since the acquired rights cannot be reversed, early retirement still happens, albeit statistics are showing signs of very limited improvement in recent years. For example, in 2006 the share of retired people in the 45-54 age group was 24.9 percent, compared to 24.7 percent in 2010 -- an improvement of 0.2 points in only four years.
Early retirement is a serious problem since pensions are financed by premiums paid by the workers. Now, the share of retired individuals to those employed increased from 28.3 percent in 2006 to 31.6 percent in 2010 and it will continue to increase despite the reforms, while Turkey has neither terminated its demographic transition -- the working age population continues to increase -- nor achieved its economic development. Early retirement combined with an aging population is one of the main challenges Turkey is facing. Unavoidably, the bill will be paid by our children.
A new retirement reform is certainly needed but the process of early retirement can hardly be reversed. The best that could be done would be encouraging retired people to work in the formal sector. In fact, some of them are already working. Here I suggest a new slogan, just as a joke: “Retire, find a new job, double your income sources before dying.” Jokes aside, I must confess that this is exactly my case! In 2010, there were approximately 5.5 million retired men and 1.7 million retired women. Let me state that the gender difference is explained by the very low number of women who had formal jobs in the past. Out of 5.5 million retired men, 1.9 million were working in 2010, while out of 1.7 million retired women, only 128,000 were working. Altogether, one out of three retired people actually has a job. This reaches one in two among the young retired, aged under 55.
The huge gender gap among the working retired has to be noted. Here we have another interesting aspect of the early retirement phenomenon. A very large majority of young retired women are out of the labor market. This is one of the causes of the very low female labor force participation (30 percent) prevailing in Turkey. On the other hand, only one quarter of the whole working retired are wage earners and the remaining work in their own business. We can add that approximately one working retired person out of five is formally registered in the Social Security Institution (SGK), i.e., paying a premium. For firms employing retired people, it is a way to lower labor costs.
The bottom line of this Turkish early retirement story is that we have to find a way to increase the number of retired people in the workforce, particularly young retired women. We need a system combining the right incentives with some constraints. To be frank, I have not thought about what these incentives could be. But I hope that there is a way. If not, the bill the young generations will pay will be very heavy.