The Law No. 6740 amending the Private Pension Savings and Investment System Law, no. 4632 (the“Law no. 4632”) has been published in the Official Gazette dated 25 August 2016 (the “Amendment Law”).
Under Law no. 4632, the only ways to participate in the Turkish private pension system were (i) optional involvement in the system via individual or group private pension agreements, or (ii) via private pension arrangements offered as part of any employees’ employment benefits. Individuals enrolled in the scheme were entitled to a state subsidy equal to 25% of the contribution fee being paid by the individuals.
In addition to the participation methods available under Law no. 4632, the Amendment Law introduces a new concept of automatic participation in the Turkish Private Pension System. As per the Amendment Law which will enter into force on 1 January 2017:
- Employees under the age of 45 are required to participate in a private pension plan where their employers are required to pay 3% of their income, calculated as per Article 80 of the Social Security and General Health Insurance Law, no. 5510, on behalf of the employee. The Council of Ministers is entitled to amend this ratio by increasing it two-fold or by decreasing the ratio to 1% or by proposing a fixed limit to the contribution fee.
- An additional state subsidy, in the amount of TRY 1,000 (one-time only), for participating in the system, will be paid into the employee’s pension scheme.
- If the employee changes his/her workplace, (i) and the new workplace has a qualifying pension plan as defined under the Amendment Law, the employee’s existing incurred pension amount will be transferred to the pension plan of his/her new workplace, or (ii) if the new workplace does not have a qualifying pension plan as defined under the Amendment Law, the employee has two options: (a) to continue the pension plan provided by his/her previous employer, or (b) to terminate his/her pension plan. The employee is required to notify the pension company regarding his/her decision by the end of the month in which he/she changed his/her workplace.
- Although the involvement in the system is automatic, the employee has a right of withdrawal within two months upon receiving notification of his/her participation in the pension plan. If the employee decides to terminate his/her pension plan within the first two months of participation, the additional state subsidy of TRY 1,000 will not be paid.