An individual pension system was introduced in Turkey in 2001 with the Law on Individual Pension Savings and Investment System ("Law") No. 4632. Since that time, the Law has been amended several times. The most recent amendment was made with the Law on Amendment of the Law on Individual Pension Savings and Investment System ("Amendment Law") which was published in the Official Gazette on August 25, 2016.
The Amendment Law made the individual pension system compulsory for many Turkish employees, with the stated goal of improving the welfare of employees. The compulsory individual pension system ("CIPS") came into force on January 1, 2017, as per the Amendment Law.
1. Employees Covered by the CIPS
All Turkish citizens who are under the age of 45 and are currently working (or will start working) under an employment agreement are within the scope of the CIPS. Furthermore, public sector employees subject to Article 4(c) of the Law on Social Insurance and General Health Insurance No. 5510 are also within the scope of the CIPS, if they are 45 or younger.
Employees will participate in the individual pension system with a pension agreement prepared by their employers in accordance with the Law. Employers should work in cooperation with a pension company that is approved by the Undersecretariat of Treasury to offer compulsory individual pension schemes.
The CIPS does not cover all employees at the moment; however, its scope will be gradually expanding. The system will be in effect for employees who work at workplaces with (i) 1000 or more employees as of 01.01.2017, (ii) 250 to 999 employees as of 01.04.2017, (iii) 100 to 249 employees as of 01.07.2017, (iv) 50 to 99 employees as of 01.01.2018, (v) 10 to 49 employees as of 01.07.2018, (vi) 5 to 9 employees as of 01.01.2019.
If an employer has more than one workplace, the number of employees will be determined for the purposes of this law as the total sum of the number of employees working at all of the employer's workplaces.
2. Employee Contributions to the System
Employee contributions to the CIPS will be 3% of the employee's basis earnings subject to the employee's premium. It should be emphasized that it is not the net earnings that will be taken into account while calculating the employee's contribution; premium, bonus, and some other payments are also considered. The Council of Ministers is authorized to increase the employee's contribution rate up to 6% or decrease it down to 1% or set it at a fixed amount of money. Employees are entitled to request that their employers make a higher deduction from their earnings than the amount agreed upon in the pension agreement. Therefore, an employee's contribution rate, as determined by the Law or the Council of Ministers, provides only the minimum rate, which may be increased if an employee wishes to do so.
An employee's contribution will not be paid to the pension company directly by the employee. Instead, the employer is obligated to deduct the employee's contribution from the employee's earnings and pay it to the pension company on behalf of the employee. These payments must be made by the first business day following the employee's salary pay date at the latest. If the employer does not pay the employee's contribution at all or pays it late, the employer will be liable for the employee's monetary loss, if any.
3. Employees' Right to Withdraw from the Pension Agreement
Employees are entitled to withdraw from the pension agreement within two months after employers notify them of their participation in the compulsory individual retirement system as mandated by the Law. If an employee withdraws from the pension agreement, the employee's contributions and investment incomes, if any, must be paid to the employee within ten business days after the withdrawal date. Pension companies are responsible for managing their funds in a way that protects the value of the employees' contributions during the withdrawal period of two months.
Employees who do not exercise their right to withdraw from the pension agreement are nevertheless entitled to request the suspension of payment of employees' contribution in certain circumstances, as determined by the Undersecretariat of Treasury.
4. Change of Workplace
If an employee's workplace changes and there is a pension scheme within the scope of the CIPS in use at the new workplace, the employee is entitled to transfer his/her accumulated savings and retirement time basis gained (as calculated according to the expired pension agreement) to the new pension agreement offered by the new employer.
If there is no pension scheme within the scope of the CIPS in use at the new workplace, the employee may either continue to pay the employee's contribution within the scope of the pension agreement in effect at the previous workplace, or terminate that pension agreement. The employee must notify the pension company of his/her decision by the end of the month following the change of workplace at the latest.
5. State Contributions and Retirement
Employees will receive a state contribution to be added to their savings, in the amount of 25% of their paid contributions.
However, in order to receive the full amount of this state contribution, employees must receive their retirement benefits from the CIPS; otherwise, the state contribution will be partially or fully withheld from the employees, depending on the number of years that they have paid into the compulsory pension system. In addition to the 25% state contribution to employee contributions, the government will also provide a TL 1,000 bonus to the employees' pension schemes if the employees do not withdraw from the pension agreement within the two-month withdrawal period.
If the employee retires and chooses to receive his/her retirement benefits through an annuity contract, the employee will then receive an additional state contribution amounting to 5% of his/her accumulated savings.
Employees will be entitled to retire at the age of 65, if they have been involved in the compulsory individual retirement system for at least 10 years.
6. Sanctions against Employers
The obligations of employers within the framework of the CIPS will be subject to the supervision of the Ministry of Labor and Social Security. An administrative fine of TL 100 (for 2017) may be imposed for each violation, if employers do not comply with the duties and obligations provided by the CIPS.
This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in March 2017. A link to the full Legal Insight Quarterly may be found here
This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in March 2017. A link to the full Legal Insight Quarterly may be found here.
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.