The Effect of Behavioral Instruments on the Savings in Private Pension Plans: The Case of Turkey

In Turkey, significant changes have been made in the legislation of Individual Pension System (IPS) in 2012 (matching contribution system has been introduced) and 2016 (Automatic Enrollment System has been established). Thus, behavioral instruments which can be defined as libertarian paternalistic, such as default rules and framing, have begun to be used more effectively in IPS. When the progress in IPS between the years 2003-2021 is examined, it has been determined that behavioral instruments have a positive effect on the savings in the system, but these effects are small. It was concluded that the participants decided to continue or exit IPS with rational reasons. Participants who can benefit from full state subsidy in shorter time, have higher continuation rate and contribution amounts in the system. Participants exit the system when exits are optimal (such as after 36th months when they are entitled to benefit from the minimum state subsidy, and after the 5th year when entrance fees are no longer charged). With rational reasons like the real return of IPS being lower compared to alternative investment instruments and its fund management fees being high, the households in Turkey either do not prefer saving on IPS or see the IPS as a short-term saving instrument.