Turkey Plans a Severance Payment Fund

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The “severance payment fund,” a longstanding issue of Turkey, has been brought to agenda again in the presentation of new reform packet revealed by the Finance Minister on 10th of April.

Both labor and employer representatives have being expressing their reservation about the proposed scheme during last 40 years. However, the Minister strongly stressed the need of a new fund, which will support the Turkey’s inadequate savings.

Arguments over severance payment system have a long background in Turkey; and it still constitutes the most controversial issue. Starting from 1975 a severance payment fund, intended to reconstruct the still prevailing system, occupied the agenda during the last 42 years.

Nowadays, the Government looks more decisive to integrate the severance pay fund with the private retirement insurance fund, through agreement with the social partners.

CURRENT SEVERANCE SYSTEM

  • Severance payments of the entitled employees are paid by employer.
  • In Turkish Labor Law there are many types of entitlement conditions, such as retirement, military service for men, marriage for women, being dismissed for unjust causes and so on.
  • Employee should work at least one year in the same workplace to entitle severance payment. In case the employee resigns, changes his workplace, or is dismissed by employer for valid reason, he/she cannot receive any severance pay, and his length of service that taken as a base in calculation of severance is set to zero.
  • Qualified employee is paid a severance pay equal to last 30 days’ gross wages for each full year of employment, and pro rata payment for a portion of a year.

 OUTLINES OF PROPOSED SEVERANCE FUND

For the time being, there is not a prepared draft, and nothing much shared with the public. The following points are the ones discussed in the media and business world.

  • The newly-hired persons will be compulsorily included in new system, but the current employees may continue with the previous one,
  • The acquired rights will be reserved and existing funds will be transferred to new employee's individual account
  • Severance will be paid through a Fund that will be established for each individual employee,
  • All employees who even left the work by their own wish (resignation) or are dismissed for just cause, and whatever their length of service, will be able to receive their severance pay from their individual severance pay account,
  • Contribution: The employers will contribute to employee's severance account, though the ratio of contribution is highly controversial.
  • It is not clear yet whether the Government will contribute or not.

We will be following this revolutionary arrangements closely and will keep you updated on the matter.

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