Turkey: Pension Funds: The Road To A Pleasant Retirement

The system's primary purpose is to provide the contributors with the opportunity to put their money to good use.

Even though it recently has become a trending topic among the people of Turkey, the individual retirement system, hence pension funds, have been present in the Turkish market for over more than a decade. The pension fund system works strictly on a voluntary basis where the contributors choose to have an additional backup plan for their retirement years alongside the state pension system.

The legal framework which regulates pension schemes offered by private pension companies was first introduced in 2001, but the system was not put into effect until 2003. In 2013, the Capital Markets Board (the "CMB") introduced new legislation regulating the incorporation and activities of pension funds through a private retirement system.

The system's primary purpose is to provide the contributors with the opportunity to put their money to good use by providing an alternative method to save money for retirement. In that respect, the contributor will no longer have to resort to "under mattress" savings, but instead can increase the value of his or her savings by contributing to a private pension scheme. Following the enactment of the private pension legislation, there are currently two main pension systems in Turkey: (i) the state pension system; and (ii) private pension systems.


The longstanding pension system governed by the state has always been and still is the most commonly used retirement plan. The employee and the employer are both obligated to be part of the system since compulsory contributions are collected from both the employers and the employees. These contributions cover different areas regulated under the Social Security and General Health Insurance Law numbered 55101 (the "Law") and the contribution rates differ depending on the branch of the insurance.

The three branches of insurance recognized under the provisions of the Law are (i) short-term insurance (which covers occupational accidents and diseases, illness insurance and maternity insurance); (ii) long-term insurance (which covers old-age insurance, disability insurance and retirement insurance); and (iii) unemployment insurance.

The contribution obligations of employers and employees toward the pension under the long-term insurance provisions are as follows:

  • 9% by employees (which is directly deducted from employees' gross salary by the employer); and
  • 11% by employers.

Although the above-referenced contributions are required for the governmental pension system, the payment of contributions alone is not sufficient in order to become eligible for a state pension scheme. There are certain conditions that must be met in order to become eligible for a government pension, which are as follows:

  • To reach to the retirement age; and
  • To have had long-term insurance contributions paid for the requisite number of days.

The limits and thresholds differ according to the date on which the insurance commenced; therefore, the commencement date is a relevant factor when calculating the pension amount. The amount to be received in the state pension system will differ depending on the period of time during which long-term insurance contributions are paid in the name of the employee.


Although the state-based pension system is more frequently used, private insurance companies also offer individual and personalized pension schemes.

The Law on Individual Pension Savings and Investment Systems numbered 46322 (the "Pension Law") sets forth a private pension system which can be considered as complementary to the existing state-originated pension system and which regulates the pension schemes offered by private insurance companies. Contrary to the state-based pension system, this system is not compulsory and is based on voluntary participation. Participants of this system are not dependent on a single plan. The participants are entitled to choose among different plans, depending on the amount they wish to pay as contribution and the amount to be received when retired.

A recent amendment to the law introduced a state contribution into private pension plans in order to develop the private pension programs in Turkey and to encourage citizens to participate in these programs. In this respect, as of January 1, 2013, the government has started to contribute up to 25% of the amount paid by the employees which accordingly increases the amount being saved in the employee's pension account. Even though the private pension system is a voluntary one, the employee must remain within the system until the legal retirement age and continue to pay contributions in order to become eligible to collect the entire amount paid by the state as an additional contribution. If the employee leaves the system before the legal retirement age, as he or she is entitled to do, the amount to be received from the state contribution will differ based on the years the employee stayed as a part of the system. Accordingly, if the employee stays in the system for:

  • at least 3 years, 15% of the state contribution may be received;
  • at least 6 years, 35 % of the state contribution may be received; and
  • at least 10 years, 35 % of the state contribution may be received.


With the enactment of the Regulation on the Principles of Incorporation and Activities of Pension Funds3 (the "Regulation"), pension funds are deemed as CMB governed institutions and are comprised of investment vehicles such as term deposit and participation accounts, various debt instruments, precious metals and assets based on precious metals, derivative investment vehicles and other investment vehicles determined by the CMB.

Who can establish pension funds

As per the Pension Law, only retirement companies can incorporate pension funds. Incorporation of the retirement companies is subject to the approval of the Undersecreteriat of Treasury ("the Undersecretariat"). Retirement companies are required to have a minimum capital of TL 20,000,000 for incorporation and at least 10,000,000 TL of the initial capital must have been paid during incorporation. The remainder of the share capital is required to be paid within 3 years following incorporation.

Next, the duly incorporated retirement company must receive a second approval from the Undersecretariat for an operating permit in the field of retirement. Within three months following the receipt of the operating permit the retirement company will apply to the CMB to establish a pension fund.

Each retirement company is expected to set up at least three funds with different portfolio structures in order to provide the contributors with diverse means of investment in which they are entitled to choose the best portfolio structure depending on their personal risk and yield expectations.

How to become a part of the pension fund system

The contributor must first apply to one of the retirement companies incorporated upon approval of the Undersecretariat for the execution of a retirement agreement. The effective date of the retirement agreement will be the date on which the first contribution amount is transferred to the account of the retirement company and the retirement agreement will be delivered to the contributor within at least ten days following the effective date. The effective date is significant due to the fact that this date will be taken into consideration for the calculation of the retirement age.

How the system works

The system works on a basis of collection of contributions from the individuals. Moreover, contributors are free to choose between various retirement companies (provided that they stayed within the same retirement company for at least one year) and since their rights are portable they may even transfer their accumulations to another company at their discretion.

No minimum amount is set under the legislation for the contributions paid by the individuals. The amount may be mutually agreed upon between the retirement company and the contributor. Yet, contributions that are paid will be invested in the choice of fund selected by the investor within two days following the date of contribution.

Contributors will become eligible for retirement when they reach the age of 56 and on condition that they have been in the system for at least ten years. Once the contributor is retired, the contributions accumulated in the fund will be paid to the contributor based on the payment plan chosen by the individual. When retired, the contributors may choose to (i) take their accumulations as lump sum; (ii) withdraw the accumulations in installments; or (iii) choose a payment plan such as income insurance. They will have an option of either buying an annuity from an insurance company or leaving the money in the funds for further investments.


The pension fund system is rewarded with certain tax advantages in order to promote the individual pension system. These advantages provide benefits for both the employers and the employees but nevertheless certain conditions are required to be subject to tax exemptions.

a. Tax relief on employer contributions Under the provisions of the Law numbered 46974 with regard to the Amendment on Certain Tax Laws, employers' contributions to the pension system are exempt from taxation.

Employers are entitled to deduct the amount of pension contributions when calculating their corporate tax base. However, employers must comply with the following conditions to become eligible for the tax exemption:

  • The private pension contract must be a contract signed with a Turkish pension company;
  • The amount to be deducted must not exceed 15% of the employee's monthly gross salary; and
  • The annual total amount to be deducted must not exceed the annual gross minimum wage.

b. Tax relief on employee contributions Employees are entitled to deduct pension contributions when calculating their income tax base. However, employees must comply with the following conditions in order to become eligible for the tax exemption:

  • The private pension contract must be a contract signed with a Turkish pension company;
  • The amount to be deducted must not exceed 15% of the employee's monthly gross salary; and
  • The annual total amount to be deducted must not exceed the annual gross minimum wage.


Even though not commonly used in the past in Turkey, pension funds seem to have a bright future with the incentives provided by the state as well as the tax benefits. As the government invests more and more into the system, individuals should tend to move toward the individual retirement system. The retirement companies attract potential contributors by promising a better retirement which renders the system appealing to everyone. Therefore, as more individuals become aware of the new retirement system, it is likely that more people will take advantage of these new incentives and will seek new ways to reach their retirement goals.


1. Published in the Official Gazette, dated June 16, 2006 and numbered 26200.

2. Published in the Official Gazette, dated April 7, 2001 and numbered 24366.

3. Published in the Official Gazette, dated March 13, 2013 and numbered 28586.

4. Published in the Official Gazette, dated July 10, 2001 and numbered 24458.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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