An amendment to the Turkish Individual Pension Savings and Investment System Law, Act No. 4632 (the “Law”), which will come into force on 1 January 2017, creates a potentially onerous new obligation for employers to provide their employees with an individual pension scheme.^[1]

According to the amended Law, employers have the obligation to set up a pension scheme, which will require that employers work with individual pension companies, for current Turkish employees who are under the age of 45 on the date when the Law comes into force and new hires who are Turkish citizens and are under the age of 45.

Turkey’s Council of Ministers is to determine which workplaces and employees are subject to this new requirement.  The Undersecretariat of Treasury has certain responsibilities regarding the implementation of the Law, such as (i) identifying the pension companies with which employers may work with when setting up the pension schemes, (ii) the criteria to be considered by employers when choosing which pension companies to work with and which pension schemes to use, and (iii) what happens when employees change jobs.

The amount of the contribution to the pension scheme, which the employer is required to deduct from the employee’s salary, is to be 3% of the base amount of the income from which social security contributions are deducted.  The Council of Ministers is empowered to increase this percentage up to 6% or to decrease it to 1%, or set a fixed contribution amount.

The employer must deposit the employee’s contribution to the pension scheme with the pension company, at the latest, one working day following the date the salary of the employee in question is to be paid.  The employer will be held 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 date due.

With one exception, the Law does not change the Turkish government’s existing pension contribution obligations.  Apart from those contributions, there is to be an additional one time government contribution in the amount of TL 1,000 per employee, which is to be made at the time the employee joins the new pension scheme, subject to the Council of Minister’s possible modifications.

The employee has the right to withdrawal from the pension scheme, which he or she can do within two months of notice from the employer that he or she has been included in a pension scheme.  If the employee exercises this right to withdrawal, all contributions together with the savings, if any, are to be returned to the employee within 10 working days.  Employees who do not so withdraw may request that their employers suspend the payment of contributions on their behalf in certain circumstances to be determined by the Undersecretariat of Treasury.

If an employee changes jobs and there is a pension scheme in the new work place, all contributions and savings in the employee’s previous pension account and any remaining time left to run on that account is to be transferred to the new pension scheme.  If there is no pension scheme in the new work place, the employee has the option to request to continue to pay contributions into his or her old pension account.  If he or she does not request this, then the pension account associated with the employee’s former work place will be terminated.  The employee must give notice of his or her desire to continue to use the old pension account within one month of the change of jobs.

If an employer fails to comply with any of its obligations under the amended Law, it can be accessed an administrative fine of TL 100 for each violation.

In summary, the Law imposes only duties on employers related to the Law’s implementation, with no obligation to make financial contributions to the new pension schemes over and above those it is already obligated to make.  Having said this, the financial burden of setting up and administering the new pension schemes will certainly be significant.  Just how significant will be clearer as the date of the Law coming into force approaches and further details are provided by the Council of Ministers and the Undersecretariat of Treasury.  We plan on providing further updates as those details become known.  In the meantime, please do not hesitate to contact us with any questions or comments you might have regarding this important change in the Law.