Paying a pension to a retiree's surviving spouse

Minister of Labor and Social Security Vedat Işıkhan made unfortunate statements regarding retirees and the pension system. He said, "Retirees pay premiums for 20-25 years and receive a pension for 40 years. Furthermore, when they pass away, we continue to pay a pension to their surviving spouses."

The Minister of Social Security saying, "we make payments to surviving spouses" shows that he does not know how pension systems originated in the world. The first pension system based on premium payments in the world was established in the 17th century to provide a monthly income to the surviving spouses and children of deceased clergymen. The famous mathematicians of that era, who researched how this premium system could be efficient, also became the founders of the science of statistics. Let's take a brief look at how pension systems were established in the world.

RETIREMENT IN ANCIENT ROME

Although there were no premium payments or a modern "pension," the first retirement system was established in Rome in 13 BC by Augustus Caesar. The system aimed to prevent legionnaires from rebelling and to encourage a permanent career in the army. Retired soldiers, who generally served between 16 and 25 years, were given a lump-sum payment (sometimes equivalent to 13 years of a legionnaire's salary) or a land grant in return for their service.

MEDIEVAL EUROPE: GUILD SOLIDARITY

After the collapse of the Roman Empire, state-supported systems ceased; the obligation to provide security shifted to local and professional organizations such as guilds. In the Ottoman Empire, this system manifested itself as the Ahi organization. Guilds (associations of artisans and tradesmen) in Medieval Europe created common funds by collecting regular dues from their members. These funds provided a kind of social security net for elderly, sick, or disabled members who could no longer continue their work. Additionally, subsistence support (iaşe) was provided to the widows and orphans of deceased members.

WIDOWS OF CLERGYMEN AND THE BIRTH OF THE SCIENCE OF STATISTICS

The first pension systems that emerged in Europe in the 17th century were established for the surviving spouses and children of deceased clergymen. When clergymen affiliated with the church died, the issue of deducting premiums from their salaries to provide aid to their spouses came to the agenda. While the topics of how much premium should be deducted from the priests and how much these deducted premiums would suffice for the surviving spouses were being discussed, mathematicians stepped in.

The fund established in 1645 in Germany by Duke Ernst I of Gotha was aimed at the surviving spouses of church clergy. Such funds aimed to prevent a family from falling into poverty when a clergyman died, and they later became widespread in other European countries. Attempts to solve the fundamental problem of the funds established in the 17th century brought with them the birth of the science of statistics.

The problem was: How could it be known whether the money accumulated in the fund would be enough for future surviving spouses? On what basis would they calculate how much dues they needed to collect and how much payment they needed to make?

To make realistic calculations, two basic pieces of information were needed:

First, Mortality Rates: Estimating at what age a person would die and thus when the surviving spouse would start using the fund.

Second, Life Expectancy: Estimating how long the surviving spouse would live after their husband and therefore how long the fund would need to make payments.

To solve these problems, two names stood out in the first stage.

Edmond Halley (1656–1742): The famous astronomer who discovered Halley's Comet was also a mathematician and scientist. In 1693, he created the first scientific life table using the death records of the city of Breslau (Wroclaw). This table allowed for the mathematical calculation of the probability of a person at a certain age living until the next age. Halley designed this table to be used in the calculation of insurance premiums and annuities.

James Dodson (1715–1757): An English mathematician who worked on the mathematical problems of widows' funds and made insurance calculations more systematic... Dodson's contribution was to restructure the funds by using Halley's principles to determine premium and payment amounts that varied by age. This allowed the funds to manage the financial burden created by the death of elderly members in a fairer and more sustainable way.

The work of these mathematicians not only saved the clergy funds but also accelerated the following:

Probability Theory: It accelerated the development of mathematical methods to estimate the effects of random events (such as death) on large masses.

Law of Large Numbers: It showed that although we cannot predict the outcome of a single person for events like death, we can predict the average behavior (life expectancy) of a large group of people.

Actuarial Science: The foundations of modern actuarial science, which combines probability, statistics, and financial mathematics to ensure the financial management of life insurance and pension plans, were laid.

Another important milestone in the integration of church-based funds with actuarial science took place in Scotland. The Ministers' Widows and Orphans Fund of the Church of Scotland, established in 1744, is considered the world's first fully actuarially based pension/widows' insurance plan, designed by mathematicians Robert Wallace and Alexander Webster together with clergymen.

THE INDUSTRIAL REVOLUTION AND THE BIRTH OF THE MODERN PENSION SYSTEM: BISMARCK'S GERMANY

In the 19th century, the Industrial Revolution weakened the traditional guild system and created a large, poor working class. Individual risk became a social problem. The country that brought an institutional solution to this chaos was Germany. German Chancellor Otto von Bismarck wanted to show that the state would look after the workers as a precaution against the rise of labor movements and socialist parties. His goal was both to ensure social stability and to bind the workers to the state.

As part of the social reforms of the 1880s, Bismarck first established health insurance in 1883, followed by accident insurance in 1884. The program turned into old-age and disability insurance in 1889. All employees nationwide had to be covered by insurance. Its financing was provided through worker and employer deductions and state contributions from the budget.

PENSION SYSTEM AND THE WELFARE STATE

Pension systems, which manifested themselves in ancient times, started as a privilege of soldiers, turned into professional organization solidarity in the Middle Ages. It continued with the privilege of the church clergy in the 17th century. Since the 19th century, it has become a fundamental right of all individuals in modern industrial societies.

Pension systems are one of the most important indicators of the welfare state concept. The other two basic indicators are free and quality healthcare for everyone and the right to quality and free education for everyone.

Non-premium contributions of governments to pension systems are a requirement of a welfare state. Our Minister of Labor and Social Security says that minimum wage and pension expenditures should be cut to reduce budget deficits, but Turkey can only provide half of the world average in terms of state contribution to the pension system.

While the ratio of government spending for retirees to national income in Turkey is 4.3 percent, the world average is 7.9 percent, and the European average is 11.3 percent... If you compare it with North Africa, yes, we are better than them for now. It is 1.7 percent there...

THE FACT THAT 25 YEARS OF PREMIUMS EQUALS 40 YEARS OF PENSION DOES NOT REFLECT REALITY

Let's also clarify the issue of paying 20-25 years of premiums and receiving a pension for 40 years. According to Prof. Dr. Aziz Çelik, an expert in the field of working life, the claim that "we collect premiums from retirees for 25 years and pay them for 35 years" does not reflect reality. Of course, there are such examples. But why do you hide that there are those who pass away immediately after retiring or even before retiring? The truth is this. The average retirement age in Turkey is 52. The average life expectancy is 78... A person who starts working at 18 pays premiums for 34 years and receives a pension for 26 years; a person who starts working at 22 pays premiums for 30 years and receives a pension for 26 years.