TURKEY – Auto-enrolment: Final Stages Of Implementation
Isabel Coles | 31 July 2018
The phased introduction of pension auto-enrolment enters its final stages, with compliance for smaller private sector employers in Turkey required from 1 July 2018 and 1 January 2019.
In 2016, the Turkish Government introduced the requirement for companies to automatically enrol their employees into a private defined-contribution pension plan held with an authorised pension company. The requirements took effect from 1 January 2017 for private sector employers with more than 1,000 employees, with a phased introduction for other employers, depending on the number of employees the company has. By 1 January 2018 all private sector employers more than 50 employees needed to implement the auto-enrolment requirements.
The final deadlines in the phased introduction of the legislation are:
• 1 July 2018 for private sector employers with 10 to 49 employees
• 1 January 2019 for private sector employers with 5 to 9 employees
Only employees aged under 45 must be automatically enrolled into a pension plan, and they are required to pay pension contributions of at least 3% of contributory earnings. The State will also contribute to these plans, with a one-off contribution of TL 1,000 when an employee first joins the system, plus 25% of the employee’s monthly contributions (up to a maximum of 25% of the annual minimum wage, and subject to vesting conditions). Employers are not required to contribute to the pension plan, but are responsible for transferring the employees’ contributions to the plan. Employees can choose to opt out of the plan and receive a refund of their contributions and any returns; if they do so within 2 months of being notified of their enrolment in the plan the refund is penalty-free.
Experience in Turkey suggests that many employees who are automatically enrolled in a pension plan choose to opt out. The Ministry of Finance has proposed draft legislation that could extend the penalty-free opt-out period to 6 months as well as increasing the one-off state contribution. However, there is no indication so far of mandatory employer contributions being introduced – it is thought that one reason for the low take up of these plans is the lack of employer contributions to these plans.