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Automatic Enrolment, a practice valid for workplace-based private pension schemes, has been initiated to encourage employees to save for their retirement.

Automatic Enrolment, a practice valid for workplace-based private pension schemes, has been initiated to encourage employees to save for their retirement. The scheme, which has been promulgated in Official Gazette No. 29812, dated 25.08.2016, and taken effect as of 01.01.2017, is based on Law No. 6740 amending the Private Pension Savings and Investment System Law No. 4632. 

The practice is based on employees being automatically enrolled in a private pension scheme by their employers, and having the discretion to exit the plan when they wish to do so. Participants are granted the right to opt out within two months as of enrolment, without any losses to their principal.

Turkish citizens or those within the scope of Turkish Citizenship Law dated 29.05.2009 No. 5901 Article No. 28, older than 18 years and not over 45 years of age, being private or public sector jobholders within the purview of Social Security Law Article No. 4, Paragraph No.1, Clauses a and c are included. Until the end of 2018, on a gradual basis, employees of all companies ranging from big to small, down to 5 employees and above, will have been included in the scheme. 

The amount of contribution determined by the Social Security Institution, corresponding to 3% of the taxable base for premiums, is transferred to the Private Pension System Automatic Enrolment Account until the end of the working day following the day on which the salary is deposited. On the other hand, the 25% state contribution applies to the Automatic Private Pension System as well, irrespective of any Private Pension Systems in effect. In a calendar year, State Support worth up to 25% of annual gross minimum wage is attainable. Moreover, jobholders choosing to remain in the system become eligible for a TRL1,000 additional state contribution. Employees who exercise their right to retirement are eligible for 5% additional state contribution based on their savings, provided that they buy an annuity insurance contract of at least 10 years against the savings in their private pension account.

As regards entitlement to state contribution: it is 15% for those participants that remain in the system for at least 3 years; 35% for at least 6 years; 60% for at least 10 years; and 100% for those that alongside having remained in the system for 10 years, also fulfil the 56 years of age condition.     

As with Private Pension Systems, Automatic Enrolment Funds are exempt from income tax. Should a participant gain the right to retirement from the system; i.e. fulfil the 10 years and 56 years of age requirements, the sole taxation will have been the 5% withholding tax applicable to generated returns. 

Akin to other Private Pension System savings, Automatic Enrolment is supervised and controlled by various institutions including the Undersecretariat of the Treasury, Capital Markets Board, Pension Monitoring Centre, Istanbul Clearing, Settlement and Custody Bank Inc. (Takasbank), and independent audit companies. Participants’ savings are kept with Takasbank on a fund basis; and participants always reserve their right to withdraw and transfer their savings whenever they deem appropriate.   

Under no circumstances may fund assets be sequestered, pledged, or offered as collateral.

Pension funds within the scope of Automatic Enrolment are managed by professional portfolio management companies authorized by the Capital Markets Board.

With professional management, a transparent and reliable operating mechanism, advantageous financial and tax incentives provided by the state, as well as low management costs, Automatic Enrolment application and Private Pension System constitute Turkey’s most attractive savings platform.