A SIMULATION-BASED DECISION-MAKING APPROACH TO EVALUATE THE RETURNS ON INVESTMENTS

Abstract

The feasibility of Turkish Individual Pension System (IPS) for participants is empirically investigated under different scenarios determined based on its special conditions. Firstly, a system behaviour of the Turkish IPS is modelled by using system dynamics simulation method by taking into account the historical data of a pension company operating in Turkey. After that, all pension plans are evaluated under five “what-if” scenarios depending on the participant's age and the investment period that the deductions and the investment returns are directly related to these conditions. Secondly, the key performance metrics (i.e., net present value and profitability index) are measured to better understand which pension plans are suitable or not for participants. In conclusion, the IPS investment is not suitable for short-term investments, however, all pension plans are profitable in the medium-long term. In the long term, the IPS, particularly dynamic and aggressive funds, is determined as a very profitable investment tool for participants. (Received in April 2022, accepted in June 2022. This paper was with the author 1 week for 1 revision.).