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Defined Contribution Model: Definition, Theory and an Application for Turkey

Metin Ercen and Deniz Gokce

Istanbul Stock Exchange Review, 1998, vol. 2, issue 8-7, 33-51

Abstract: Based on a numerical application that employs social and economic parameters of the Turkish economy, this study attempts to demonstrate that the current collapse in the Turkish social security system is not unavoidable. The present social security system in Turkey is based on the defined benefit model of pension provision. On the other hand, recent proposals for reform in the social security system are based on a multipillar system, where one of the alternatives is a defined contribution pension scheme. Utilizing a defined contribution model and Turkish parameters, this study reaches the following findings: first, based on Turkish parameters, the level of retirement pension is very sensitive to the retirement age. Second, the pension rates to be paid to retirees are very sensitive to the real rate of returns realized by pension fund investments. And finally, under a defined contribution model, where current parameters of the Turkish economy are used, reasonable levels of pension are found to be with n reach.

Date: 1998
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