Turkish Labor Law
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Government is planning to change the status of voluntary private pension system into an auto-participation scheme in order to increase the domestic savings of the country. The newly-hired persons and the employees who changed their jobs will be automatically participated in the private pension scheme and they have to stay in the system at least six or eight months.
The proposed modification in private pension is also closely connected with the planned “severance allowance fund” which will bring about fundamental changes on severance pay system, and is a long standing and highly controversial issue in Turkey’s business community.
Current Practice
The voluntary Turkish private pension system (Individual Retirement Insurance) is a defined contribution system, intended to be complementary to the mandatory state social security scheme, which provides retirement earnings to participants.
Government provides state subsidy for employees, amounting to 25% of employees’ paid contributions to private pension account, with a cap of annual gross minimum wage.
Employers are not obliged to contribute, however they may make voluntary contributions by way of drawing up group pension contracts for their employees. Currently employers’ contributions to the system are tax deductible up to 15% of monthly wage with a cap of annual gross minimum wage. Also contribution to Individual Retirement Insurance and private health insurances shall be deducted from earnings subjected to premium up to 30% of monthly gross minimum wage.
Scope of the New Arrangement
Automatic, in other words mandatory, enrolment in private pension system will put into action gradually as a pilot study. In the beginning it will be applicable to;
- new-hired employees and persons change their work and start in a new workplace,
- employees under 45 years of age, this age limit may be increased in the future,
- only in the workplaces employing over 50 personnel,
Mandatory Staying Period in the System
The new entrants cannot leave the system before six months the date they have been employed. Also a recourse period of two months will be added. In future this mandatory staying period can be extended gradually.
Contributions
Only the participant will pay the contribution which cannot be below 50 TRY monthly, and state subsidy will be available. Amount of the subsidy will depend on the participants’ staying period in the system.
It is not clear yet whether the employers make any contribution for their employees, as it is the case at the present time. The specialists of insurance business are worried about that in case the employers do not contribute for their personnel, many of the participant employees may get out of the system at the end of the mandatory staying period.
Future of the Private Pension and Severance Allowance System
Turkey is also working on a new severance allowance system that aims to form a “severance allowance fund”. Once the new system put into practice, severance allowance will be paid by the said fund, instead of employers, and it is highly probable that all employees will have to enroll in private pension schemes.
