Individual Pension System
The Individual Pension System was created to complement the existing public social security system. Its primary purpose is to channel the regular savings that individuals accumulate during their working life into specified investments, so that the standard of living achieved while saving continues during retirement despite the contributions made to the pension plan. To join the Individual Pension System, it is sufficient to reach an agreement with a pension company and sign a pension contract.
When someone applies to join, the company they contact provides clear information about factors that could affect their decision to enter the system. The firm offers a pension plan tailored to the applicant’s retirement expectations, life plan, income level, and age. A person who wishes to enroll and agrees with a company but has not yet signed the pension contract completes and signs the entry information form and the proposal form. These documents include the proposed pension plan, the funds available under the plan, the deductions applied in the system, the contribution amount, and documents identifying the parties to the pension contract.
Individual Pension Deductions
Under pension regulations, pension companies may apply three different types of individual pension deductions to cover the costs of providing services in pension operations. These deductions are applied within legally defined limits and may vary in manner and amount. Below we explain the types of deductions and the main rules that govern them.
Entry Fee and Management Expense Deduction
An entry fee may be charged when you first join the Individual Pension System, paid up front; it can also be charged on a deferred basis if you transfer accumulated funds from a previous agreement to another company or if you leave the system. If you hold multiple pension contracts with the same company, the entry fee as a pension deduction is applied only to the first contract opened with that company.
During the first five years of a pension contract, the total of entry fee and management expense deductions cannot exceed 8.5% of the monthly gross minimum wage per year, subject to statutory conditions. Except in cases of exercising the right to retire or mandatory departures such as death, disability, or company liquidation, if you leave the company before the five-year contract period ends, the portion of this amount that corresponds to the period up to the end of the contract’s fifth year and has not yet been collected by the company may be deducted from your pension account as a deferred entry fee. If you suspend contributions, the company may apply additional management expense deductions on your accumulated balance for each month of suspension at the rates specified by regulation. Once the contract’s fifth year is completed, and except for statutory exceptions, no further management expense deductions—including suspension fees—can be applied and no additional entry fee may be charged under the pension contract.
Fund Total Expense Deduction
Pension companies may deduct a fund total expense fee from the individual depending on the fund group, calculated as a percentage of the fund’s net asset value. For contracts in their sixth year or later, any refunds related to fund total expense deductions made by the company will be processed annually at the end of each contract year after 2021, or when the contract is terminated. During review of the fund total expense deduction, calculations conducted according to the regulation and based on the contract year may result in a refund to your pension account or directly to you.
Regulatory changes published in the Official Gazette introduced caps on deductions taken from amounts invested in the Individual Pension System. Entry fees and management expense deductions taken within the first five years are capped at an annual limit of 102 TL. From the sixth year onward, deductions under those names may no longer be applied to participants; only the fund total expense deduction may continue to be charged. This regulatory amendment by the Undersecretariat of Treasury reduces the burden of excessive deductions on participants in the Individual Pension System.