Automatic Participation in the Private Pension Scheme
With the Automatic Participation System that will be in force as of January 2017, all employees below the age of 45, whether they are working for state or private entities, will be registered with the Private Pension Scheme. The decision that you make now is extremely important to safeguarding a comfortable future for yourself if you are an employee, and if you are an employer, to contributing to your employees’ retirement and helping them sustain their current level of welfare when they retire. Kuveyt Türk Private Pension safeguards employees’ futures and at the same time puts employers as ease thanks to the interest-free Private Pension Scheme.
Social Security Institution (SSI) and Private Pension Scheme
Social security is designed to minimize the suffering that can be caused by unfortunate events that life throws at us. The most important factor that affects people’s long-term quality of life is having social security. SSI is a mandatory system, under which all employees are secured by the state.
On the other hand, a Private Pension Scheme is a private scheme based on voluntary participation, where the regular savings made throughout one’s active working life are put into long-term investments, ensuring individuals are more financially comfortable when they retire.
In Türkiye, up until now, the social security system has existed as the 1st pillar, and the voluntary private pension scheme as the 3rd pillar. But now, the 2nd pillar, the automatic participation system, is coming into play.
Automatic Private Pension Scheme
Automatic Participation is a practice which has recently begun to be applied in our country. Employees who are under the age of 45, working for state or private entities, are automatically included in the Private Pension Scheme. Automatic participation offers various advantages such as 25% state contribution, 1000 TL one-time additional contribution granted to employees entering the system, and 5% additional contribution granted when the employee is entitled to receive the pension payment. Thanks to these advantages, private pension is currently the most profitable savings instrument available for safeguarding the future of all state and private sector employees.
About Automatic Participation
Automatic Participation is a practice which has recently begun to be applied in our country. Employees who are under the age of 45, working for state or private entities, are automatically included in the Private Pension Scheme. Once Automatic Participation comes into force on January 1, 2017, it is expected that 13 million people will join the system, and savings of 90 billion TRY will be accumulated within a ten-year period.
Automatic participation is successfully being applied in countries such as the USA, UK, New Zealand and Italy, and it will help to increase the number of participants in the Private Pension Scheme rapidly and practically, making conscientious saving more widespread across all communities, including low level income earners.
As Automatic Participation will starts to be applied in our country as of the beginning of 2017, it will provide a second source of income to employees when they retire and help them to maintain their current living standards. At the same time, it will decrease the savings shortage and provide long-term resources for the Turkish economy.
Frequently Asked Questions About Automatic Participation in the Private Pension Scheme
1- Who will be included in Automatic Participation?
Employees who are of Turkish nationality, or who fall within the scope of Article 28 of the Turkish Nationality Law dated 29/5/2009, No. 5901, and who are below the age of 45 as of the date of January 1, 2017, which is the date the law will be applied, will be included within the scope of Automatic Participation.
2- Which employees will be included in the Automatic Participation System?
Employees subject to Social Security Institution (4/a), and civil servants subject to the State Pension (4/c) shall be included in Automatic Participation.
3- Will employees subject to BAĞ-KUR (social security organization for artisans and the self-employed) be included in Automatic Participation?
Employees subject to BAĞ-KUR (4/b) will not be included in Automatic Participation.
4- How much participation share will employees pay into the Automatic Participation System?
3% of the income subject to social security premium will be paid monthly as participation share. For example, for an employee earning the minimum wage of 2,029.50 TL, the monthly participation share will be 60 TL.
An employee able to pay a higher participation share will gain a higher retirement saving in the future.
5- Will there be a maximum limit for the participation share to be paid?
Yes. For the moment, for the year 2018, the maximum amount of income subject to social security premium is 15,221.25 TL. Considering that the participation share will be 3% of the income subject to social security premium, it can be said that the participation share will vary between 60 TL and 456 TL. Besides, it is stated in the amendment to the law that the Council of Ministers are authorized to change this rate, or to bring in a fixed limit.
6- Will the advantage of 25% state contribution still be applied in automatic participation?
Yes. The 25% state contribution advantage in the current Private Pension Scheme will be applied as it is, to the participation shares paid by employees.
7- What other advantages will Automatic Participation include?
In addition to the state contribution advantage, at the time of entry to the system, a one-time state contribution of 1000 TL will be provided to employees. This advantage will be available to those who do not utilize their right to withdrawal at the end of the withdrawal period of 2 months. Also, it will be subject to the conditions of entitlement and payment for state contribution.
Moreover, at the time of utilizing retirement rights, for employees who prefer to receive the savings in their account as a regular income for at least 10 years within the scope of their annual income insurance, another 5% state contribution will be provided. These extra payments provide additional advantages compared to the current system.
8- What will those who do not choose to continue with the Automatic Participation system do?
Employees can withdraw from the agreement two months after being informed that they have been included in the pension plan.
9- Can payment of participation shares be suspended?
Yes. An employee who has not utilized his/her withdrawal right can request to suspend the payments of participation shares in the cases specified by the Undersecretariat of Treasury.
10- Can I leave the system after the withdrawal right period elapses? Are there any restrictions or additional conditions for leaving?
It is expected that leaving conditions will be specified as in the current system. When somebody leaves the current system, there is an income tax deduction applied to the investment proceeds, in varying rates according to the time the employee has stayed in the system. Regulations will specify this application in the near future.
11- Will the private pension companies collect any entry fees or make any management expense deductions?
No. There will not be any deduction, except fund operation expense deductions.
12- If the employee’s company faces a bankruptcy or enforcement proceeding, will the participation shares of the employee be protected?
With regards to bankruptcy and enforcement proceedings faced by employers under the Law of Bankruptcy and Enforcement, employee participation shares will qualify as employee receivables and as privileged receivables. The Ministry of Labor and Social Security will conduct audits on employers with regards to the related obligations, and fines will be imposed on employers who do not perform their obligations.
13- Will employees personally apply to private pension companies for automatic participation?
No. Employers will apply to private pension companies and ensure that their employees are included in the retirement plans. A more simple practice for joining the system is expected in future.
14- What is the deadline for employers to join the Automatic Participation?
Those employers who fall within the scope of the application and the subsequent deadlines will be specified and announced by the Council of Ministers in consideration of the employees’ wages.
15- Will the employer pay any participation share?
No. Within the scope of Automatic Participation, only employees will pay participation shares.
16- Do employees who currently hold an account in the Private Pension Scheme need to open a new account?
It is expected that new automatic participation private pension accounts will be opened for employees who currently have private pension accounts. Details on this issue will be announced at a later stage.
17- When an employee changes his/her company, what will happen to the account opened with the private pension company for Automatic Participation?
When an employee changes his/her company, if the new entity has a pension plan for Automatic Participation, the employee’s savings and the entitled retirement duration are transferred to the new company’s pension plan. If the new company does not have a pension plan, the employee can request to continue to pay participation shares under the agreement of the previous company. If he/she does not request so, the pension agreement can be terminated.