Regulation of state and supplementary pension schemes in Turkey: overview

A Q&A guide to pensions law in Turkey.

The Q&A gives a high level overview of the key practical issues including: state pensions; supplementary pensions; funding and solvency requirements; tax on pensions; business transfers; participation in pension schemes; and employer insolvency and overall scheme solvency.

The Q&A is part of the Multi-jurisdictional Guide to Pensions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/pensions-mjg.

Kayra Üçer, Gülbin Olgun and Begüm Ergin, Hergüner Bilgen Özeke Attorney Partnership
Contents

Pensions

State pensions

1. Do employers and/or employees make pension contributions to the government in your jurisdiction?

Contributions paid to the government

The social security system in Turkey is run by the government. The employee and the employer are both included in the system, which collects compulsory contributions from both employers and employees. These contributions cover different types of insurance, and long-term insurance contributions are made towards the employee's pension.

An obligation to contribute social security premiums is imposed on both employers and employees. The Social Security and General Health Insurance Code (No. 5510 published in the Official Gazette dated 16 June 2006 and numbered 26200) sets out various contribution rates depending on the branch of the insurance.

There are three main branches of insurance recognised under the provisions of the Code numbered 5510:

  • Short-term insurance (covers occupational accidents and diseases, illness insurance and maternity insurance).

  • Long-term insurance (covers old-age insurance, disability insurance and retirement insurance).

  • Unemployment insurance.

The contribution obligations of employers and employees made under the long-term insurance provisions towards the pension are as follows:

  • 9% by employees (employers deduct this portion from employees' gross salary).

  • 11% by employers.

Taxation of contributions

Long-term insurance contributions towards the pension are not taxable under Turkish law.

Monthly amount of the government pension

There are certain conditions to be met in order to become eligible for a government pension. These are as follows:

  • To be of retirement age.

  • To have had long-term insurance contributions paid for the requisite number of days.

The limits and thresholds differ according to the date on which the insurance commenced, therefore the commencement date is a relevant factor when calculating the pension amount. The amount receivable in government pension will differ depending on the length of time over which long-term insurance contributions have been paid in the name of the employee.

 

Supplementary pensions

2. Is it common (or compulsory) for employers to provide access, or contribute, to supplementary pension schemes for their employees? If they do, are they:
  • Occupational (that is, linked to an employment or professional relationship between the plan member and the entity that establishes the plan)?

  • Personal (that is, not linked to an employment relationship, established and administered directly by a pension fund or a financial institution acting as pension provider, where individuals independently purchase and select material aspects of the arrangements, though the employer may make contributions).

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
3. Where supplementary schemes are provided, do these schemes provide pensions, the value of which:
  • Is linked to the employee's salary (defined benefit)?

  • Is linked to employer and/or employee contributions and investment return on those contributions (defined contribution)?

Obligatory supplementary pension schemes do not exist in Turkey. As pensions are primarily state-based, the employer only pays its contribution share. With that being said, private sector insurance companies do offer individual and private schemes for pensions, although these are not frequently or commonly used. Although individual pension schemes are not common in Turkey, employers are still able to contribute to the employee's individual pension premiums if they wish to do so.

The Code on Individual Pension Savings and Investment Systems, No. 4632 (published in the Official Gazette dated 7 April 2001 and numbered 24366) sets out a private pension system which can be considered as complementary to the existing state-originated pension system, and which regulates the pension schemes offered by private insurance companies. Contrary to the state-based pension system, this system is not compulsory and is based on voluntary participation. Participants of this system are not dependent on a single plan. The participants are entitled to choose among different plans, depending on the amount they wish to pay as the contribution, and the amount to be received under the scheme.

A recent amendment law introduced a state contribution into private pension plans in order to develop the private pension programmes in Turkey, and to encourage citizens to participate in these programmes more often. In this respect, as of 1 January 2013 the government contributes up to 25% of the amount paid by employees into the private pension system. Through this incentive the amount being saved in employee accounts increases. However, the employee must remain within the system and must continue to pay contributions in order to become eligible to collect the entire amount paid by the state as an additional contribution.

Linked to the employee's salary

If an employee participates in an individual pension scheme, their employer can choose to contribute to that pension system by paying a percentage of the employee's contribution. In this case, the employer will be able to determine a pension scheme in which it can decide the amount to be contributed, and whether the contribution will be linked to the employee's salary.

Linked to employer and/or employee contributions

As mentioned above, it is at the employer's full discretion to decide how the pension scheme will be built (see above, Linked to the employee's salary).

 
4. For supplementary pensions:
  • Is there a minimum period of service before workers are entitled to receive vested rights?

  • Are there any legal requirements for schemes or providers to index pensions in payment and/or revalue pension rights in deferment?

Minimum period of service

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Legal requirement to index

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 

Funding and solvency requirements

5. In relation to supplementary schemes, are these generally funded or unfunded? If funded, are there any solvency requirements on the sponsoring employer or provider?

Funded or unfunded?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Solvency requirements for funded schemes

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
6. In relation to access for members to the funds in their supplementary pension scheme:
  • To what extent can members transfer their funds to another pension scheme?

  • How do members normally take the benefit of their funds (for example, lump sums, income withdrawals (drawdown), life annuity arrangements)?

  • What are the legal restrictions upon access to the funds (for example, age)?

  • What are the common arrangements for early retirement and ill-health retirement?

  • Are dependants of deceased members entitled to receive benefits payable on the member's death? What form do these commonly take?

Member's transfer of funds

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Taking pension benefits

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Legal restrictions

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Early and ill-health retirement

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

Dependants' benefits

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
7. Is there a regulatory body that oversees the operation of supplementary pension schemes? Do any other governance regimes apply to supplementary pension schemes?

Regulatory body

There is no regulatory body regulating this area as there is no obligatory or common supplementary pension system under the provisions of Turkish law. The Code on Individual Pension Savings and Investment System No. 4632 does require an individual pension advisory committee to be formed. However, since this committee is only advisory in nature, private pension companies and the individual pension brokers are more important players in the sector, and in effect they self-regulate supplementary pension schemes.

Regulatory framework

Although there are not many regulations regarding this matter, the following relevant legislation may be deemed to constitute the regulatory framework:

  • The Code on Individual Pension Savings and Investment System No. 4632.

  • Insurance Code No. 5684.

  • Regulation Regarding Working Principles of the Pension Advisory Committee.

  • Regulation Regarding Establishment and Working Principles of Pension Companies.

 

Tax on pensions

8. Are any tax reliefs available on contributions to supplementary pension schemes (by the employer and employees)?

Tax relief on employer contributions

Under the provisions of the Code numbered 4697 with regard to the Amendment on Certain Tax Codes, published in the Official Gazette dated 10 July 2001 and numbered 24458, employers' contributions to the pension system are exempt from taxation.

Employers are entitled to deduct the amount of pension contributions when calculating their corporate tax base. However, employers must comply with the following conditions to become eligible for the tax exemption:

  • The private pension contract must be a contract signed with a Turkish pension company.

  • The amount to be deducted must not exceed 10% of the employee's monthly gross salary (the Council of Ministers is entitled to increase this amount to 20%).

  • The annual total amount to be deducted must not exceed the annual gross minimum wage (the Council of Ministers is entitled to double this amount).

Tax relief on employee contributions

Employees are entitled to deduct pension contributions when calculating their income tax base. However, employees must comply with the following conditions to become eligible for the tax exemption:

  • The private pension contract must be a contract signed with a Turkish pension company.

  • The amount to be deducted must not exceed 10% of the employee's monthly gross salary (the Council of Ministers is entitled to increase this amount to 20%).

  • The annual total amount to be deducted must not exceed the annual gross minimum wage (the Council of Ministers is entitled to double this amount).

 
9. Are there any approval or registration requirements with the local tax authority where a supplementary scheme is established?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
10. What is the tax treatment of investments made by the scheme?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
11. What is the tax treatment of pension and lump sum payments made to members?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 
12. Are there any other applicable tax charges on schemes?

There is no answer content for this Question, as it is a new addition to the template that did not exist at the time of writing.

 

Business transfers

13. Is there any legal protection of employees' pension rights on a business transfer?

Automatic transfer of pension rights

In the event that an employer decides to transfer the workplace to another person, all of the existing employment agreements with all the rights and duties are transferred to the transferee. As a result, employees' accrued pension rights remain the same following the transfer of the business. In addition, where the previous employer offered private pension contributions, this practice must also be continued by the new employer because the employee cannot be put in a more detrimental position following the transfer than they were in before the transfer occurred.

Other protection for pension rights

There are no further protections for pension rights of employees.

 

Participation in pension schemes

14. Can the following participate in a pension scheme established by a parent company in your jurisdiction:
  • Employees who are working abroad?

  • Employees of a foreign subsidiary company?

Employees working abroad

Employees of a Turkish company who are working abroad will be entitled to partake in the pension scheme provided by the company in Turkey, and will also be a part of the government pension system. However, where the employee is working for a company established in a foreign country and is not linked to any company in Turkey, then that employee must register themselves with the state-based pension scheme and pay the necessary contributions in order to become entitled to retirement benefits in Turkey.

Employees of a foreign subsidiary company

Employees of a foreign subsidiary company can participate in a pension scheme established by the parent company in Turkey if they are included in the payroll of the Turkish company. Otherwise, these employees will be subject to the pension schemes available in the home country of the company on whose payroll they are registered.

 

Employer insolvency and overall scheme solvency

15. Is there any protection provided for pension scheme benefits where the sponsoring employer becomes insolvent? If so, who provides the protection, and how does this operate? If the scheme itself is underfunded, are there any funding obligations on connected or associated legal entities?

There is no protection provided for pension scheme benefits in the event that the employer sponsoring the employee becomes insolvent.

 

Online resources

Ministry of Labour and Social Security

W www.csgb.gov.tr

Description. Official website of the Ministry of Labour and Social Security, includes binding information in relation to labour matters. An English version is available.



Contributor profiles

Kayra Üçer

Hergüner Bilgen Özeke

T +90 212 310 18 27
E kucer@herguner.av.tr
W www.herguner.av.tr

Professional qualifications. Georgetown University Law Center (LL.M., 2000); Marmara University School of Law (Law Diploma, 1998)

Languages. English, French

Professional associations/memberships. Member of: the Istanbul Bar Association; Saint-Joseph Alumni Association; Georgetown Alumni Association and the Corporate Governance Association of Turkey. Kayra Üçer has been with the firm since 2000, and was an Associate with another law firm in Istanbul from 1996 to 1999.

Gülbin Olgun

Hergüner Bilgen Özeke

T +90 212 310 18 33
E golgun@herguner.av.tr
W www.herguner.av.tr

Professional qualifications. Galatasaray University Faculty of Law (Law Diploma, 2009)

Languages. Turkish, English, French, Spanish

Professional associations/memberships. Member of the Istanbul Bar Association as of 2010. Gülbin Olgun has been with the firm since October 2012 and was an associate in another firm in Istanbul from 2009 to 2012.

Begüm Ergin

Hergüner Bilgen Özeke

T +90 212 310 16 87
E bergin@herguner.av.tr
W www.herguner.av.tr

Professional qualifications. Galatasaray University Faculty of Law (Law Diploma, 2013)

Languages. Turkish, English, French, Spanish

Professional associations/memberships. Begüm Ergin has first entered the firm as a summer associate in 2012, and started working as a legal intern in 2013.


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