Turkey: Automatic Enrolment Of The Employees Into Individual Pension System

Last Updated: 11 January 2017
Article by Pekin & Bayar

The Law Amending the Law on Individual Pension Savings and Investment System numbered 6740 ("Law No. 6740"), which introduces a new system providing the employees to enrol into an individual pension system automatically, was announced in the Official Gazette dated 25.08.2016 and numbered 29812. The details of this enrolment are also determined with the amendment made to the Regulation Regarding Personal Pension System dated 17.12.2016.

Pursuant to Additional Article 2 which was included in the Law on Individual Pension Savings and Investment System numbered 4632 ("Law No. 4632") with the Law No. 6740, every Turkish citizen (or those who were born as Turkish citizens but renounced their citizenship by obtaining permission) under the age of 45 and who is employed by one or more employer under an employment agreement or employed by a public agency, shall be automatically enrolled into the individual pension system. For this purpose, the employer must enter into a pension agreement with one of the pension companies which is found appropriate by Undersecretariat of Treasury (any one of the 18 pension companies which are currently active in the sector).

In case of change of the workplace of the employee who is party to a pension agreement, if the new place of employment has a pension scheme which falls within the scope of automatic enrolment system, the savings of the employee and the period which he/she has spent in the system, shall be transferred to the pension agreement of his/her new workplace. In case of lack of a pension scheme in the new workplace, the employee may continue, upon his/her request, to pay contributions within the scope of the pension agreement of the former workplace. Otherwise, the pension agreement shall be terminated. The employee must notify the pension company of his/her request in this direction until the end of the month following the workplace change.

According to the new system, contribution fees of the employees shall be paid to the pension company by the employer, on behalf of the employee, latest on the business day following the salary payment date by deducting it from the salary of the employee. The amount of the contribution fees are determined as 3% of the employee's income subject to premium (The Council of Ministers is entitled to increase this ratio by doubling it, decrease it to as low as 1% or propose a fixed limit to the contribution). The employee may ask the employer to deduct more than the amount determined in his/her pension agreement, from his/her salary.

If the employer fails to comply with his/her obligations within the scope of the Law No. 4632 and the relevant legislation, an administrative fine of TRY 100 shall be imposed by the Ministry of Labour and Social Security for each violation. If the employer does not duly transfer the contribution fee to the pension company or delays the payment, the employer shall be also responsible for the monetary loss which may be incurred by the employee's savings. Contribution fees constitute a privileged receivable such as employment receivables with respect to attachment and bankruptcy proceedings that the employer is subject to within the scope of Attachment and Bankruptcy Law numbered 2004.

The new system grants the employee the right to withdraw from the pension agreement within two months as of his/her receipt of the notification of his/her enrolment in the pension scheme. In case of withdrawal, the contribution fees which have already been paid, shall be repaid to the employee along with any investments incomes in his/her account within ten business days. The employee, who has not exercised his /her withdrawal right, may request the suspension of his/her contribution payments for a term of maximum three months as of the date of such request.

The new system also introduces the grant of a state subsidy in the amount of 25% of the employee's paid contributions to the private pension account. If the employee does not exercise his/her right of withdrawal, a state subsidy in the amount of TRY 1,000 shall be granted for only one time when the employee participates to the system. The Council of Ministers is entitled to decrease and increase such amount up to its half. If the employee uses its retirement right withdrawing the savings from an account in preference within annual income insurance contract, %5 ratio of minimum ten years of savings will be provided as supplementary state subsidy.

The employee may terminate the pension agreement anytime. If the employee leaves the pension scheme before he/she is entitled to his/her retirement, the employee will receive only a portion of the state subsidies as explained below;

  1. The employees who are enrolled into the system for a period of at least three years, shall receive %15 of the amount in the state subsidy account.
  2. The employees who are enrolled into the system for a period of at least six years, shall receive %35 of the amount in the state subsidy account.
  3. The employees who are enrolled into the system for a period of at least ten years, shall receive %60 of the amount in the state subsidy account.
  4. The employees who are entitled to retire and those who left the system because of death or disability, shall receive the entire amount in the state subsidy account.
  5. If the employee leaves the pension scheme before three years, he/she shall not receive any state subsidy.

The Regulation on the Procedure and Principles of Automatic Enrolment of the Employees into the Pension Scheme by Their Employers (the "Regulation") has been announced in the Official Gazette dated 2 January 2017 and numbered 29936.

As per Article 5 of the Regulation the employees (the employees who are employed by one or more employer under an employment agreement or employed in the public agencies within the scope of Article 4/c of the Law on Social Securities and General Health Insurance numbered 5510) who are employed in the public agencies listed under the Schedules I,II,III and IV of the Law on Public Finance Management and Control numbered 5018 (Schedule I- General Funded Public Agencies; Schedule II- Special Funded Agencies; Schedule III- Regulatory and Supervisor Agencies; Schedule IV- Social Security Agencies) shall be automatically enrolled into the pension scheme as of 01.04.2017 and the employees who works in other public agencies shall be enrolled into the pension scheme automatically as of 01.01.2018.

The employees who are employed at or after the dates mentioned above will be automatically enrolled into the pension scheme at the date which they have started to work in such public agency.

As per Article 6 of the Regulation, the employees who are employed by one or more employer under an employment agreement in private sector workplaces with five or more employees, shall be automatically enrolled into the pension scheme gradually as explained below;

  • The employees of the workplaces with 1000 or more employees shall be enrolled into the pension scheme as of 01.01.2017,
  • "The employees of the workplaces with 250-999 employees shall be enrolled into the pension scheme as of 01.04.2017,
  • The employees of the workplaces with 100-249 employees shall be enrolled into the pension scheme as of 01.07.2017,
  • The employees of the workplaces with 50-99 employees shall be enrolled into the pension scheme as of 01.01.2018,
  • The employees of the workplaces with 10-49 employees shall be enrolled into the pension scheme as of 01.07.2018,
  • The employees of the workplaces with 5-9 employees shall be enrolled into the pension scheme as of 01.01.2019.

Whilst determining the number of employees, the total number of the employees in all workplaces of the same employer shall be taken into account. The employees who are employed at or following the dates mentioned above, will be automatically enrolled into the pension scheme when their employment agreements become effective.

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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