Brief Summary on the Law numbered 6740 amending the Private Pension Savings and Investment System Law numbered 4632
The law numbered 6740 (the “Law”) has been published in the Official Gazette dated 25 August 2016. The Law introduces a new concept of automatic mandatory retirement participation method, in addition to the individual retirement methods set forth under the Turkish Private Pension System, which has been regulated under the Law numbered 4632.
This new retirement participation method is a mandatory social security plan which aims to improve the welfare level of employees by providing a supplementary income during retirement. The Law will be applicable to the workplaces which will be specified under the secondary legislation to be issued by the Council of Ministers. The Law will be effective as of 1 January 2017. Considering that the relevant secondary legislation has not been issued yet, the effective date of the Law may be delayed.
According to the Law, as of 1 January 2017, the employees shall be included in a pension plan that will be obtained by their employers from a pension company which is specially authorized by the relevant governmental authority.
1. Scope of the Law
All Turkish employees under the age of 45 and working under provisions 4-A or 4-C of the Social Security and General Health Insurance Law will be subject to the Law.
2. Calculation of the Contribution Amount
The contribution amount will be deducted from the employee’s income by the employer. The contribution amount will be equal to 3% of the amount of the base income of the employee, which is the basis for the calculation of social security contributions (TRY 49.41 monthly for the minimum wage earners and TRY 321.17 for the employees whose salaries are subject to the upper earning limit of TRY 10,705.50 set by the Social Security Institution). Also, The Council of Ministers is empowered to increase this percentage up to 6% or to decrease it to 1% or propose a fixed amount.
Furthermore, there is going to be an additional one-time government contribution in the amount of TRY 1,000 per employee, which is to be made at the time the employee joins the new pension plan.
3. Responsibilities of the Employer
The employers are obliged to provide their employees with an individual pension scheme as of 1 January 2017.
The employer must deposit the employee’s contribution to the pension scheme with the pension company, within one (1) business day (at the least) following the date the salary of the employee is paid. The employer will be liable for any loss in the employee’s pension savings if the employer fails to deposit the required amount with the pension company by the due date.
If the employer does not fulfil its obligations regulated under the Law, there will be an administrative fine of TRY 100 for its each violation.
4. Rights of the Employee
Even though the participation in the pension system is automatic, the employee has the right to withdraw from the pension plan, which he/she can do within two (2) months of notice to the employer. If the employee exercises the right to withdraw, all contributions together with the savings, if any, are to be returned to the employee within ten (10) business days.
In the case the employee ends his/her pension plan within the first two (2) months of participation, the government contribution in the amount of TRY 1,000 is not going to be paid back to the employee.
5. Change of Workplace
In case an employee changes his/her job;
- If there is a pension plan in the new workplace within the scope of the Law, all contributions together with the savings and the time accumulated in the former pension account will be transferred to the new pension plan.
- If the new workplace is not required to have a pension plan under the Law, the employee has the option to request to continue to pay contributions into his/her former pension account or pension account associated with the employee’s former workplace will be terminated. The employee must notify the pension company about his/her decision to continue to use the former pension account by the end of the month following the change of workplace.