Sukuks integrated into pension system

ISTANBUL

The new individual pension system is adapted to sukuk, or Islamic bond.

Participants of the personal pension system incentivized by the state will now be able to choose to invest 25 percent of the state’s contribution in sukuks, or Islam-compliant bonds.

With the government seeking to increase citizens’ involvement in the personal pension system by contributing 25 percent themselves, communities that prefer non-interest systems have been taken into consideration.

Some 75 percent of the pension fund provided by the state can be invested in debt instruments issued by the Treasury, revenue sharing certificates, or sukuks. The remaining 25 percent can be managed in investment instruments such as government bonds, treasury bonds, as well as sukuks, according to the new pension system that has been in effect since Jan. 1.

The system seems to be succeeding, with 85,000 new members joining the personal pension system in January, meaning that the total number of members is now more than 3.2 million, according to data released by the Pension Surveillance Center.

A sukuk is an Islamic bond that complies with the investment principles of shariah law, which prohibit the charging or paying of interest. Turkey is a relatively new player in the sukuk market.

The Undersecretariat of the Treasury raised 1.6 billion Turkish Liras in a lira-denominated sovereign sukuk issuance in October, and a debut issuance of $1.5 billion through a dollar-denominated sukuk the month before. The second issuance came as a success, with the government diversifying its sources of financing by tapping into the global Islamic bond market. The volume of the global sukuk market is estimated at around $100 billion.