Pension that decreases as you keep working can occur under certain conditions, although the exact circumstances are not always straightforward. Some situations clearly cause a reduction in the pension amount when a retiree continues to work. To understand why a pension may fall and how to avoid it, insured workers should pay attention to several key points.
Why Does the Pension Decrease When You Keep Working?
There is no single reason why a pension might decrease if the retiree continues working. Although it may sound counterintuitive, some insured people experience a reduction in their pension amounts when they keep working. The primary cause of this effect is legislative changes introduced in 2000 and 2008. Retirement pensions for those who began working before 8 September 1999 are calculated according to different rules depending on whether their service falls into one of three periods: before 2000, between 2000 and September 2008, or after October 2008.
For example, a worker with 9,000 premium days had a pension rate of 75% under the pre-2000 rules. For those whose employment falls in the 2000–September 2008 period this percentage was reduced to 65%, and for those after October 2008 it was reduced to 50%. The pension accrual rate indicates the proportion of the earnings used to calculate the pension base that will be converted into the pension amount.
The Impact of Reducing the Update Coefficient
The legal changes in those periods also lowered the coefficient used to update earnings over the working life to their value at retirement. Before 2000, a system based on indicators was used. If the earnings subject to premiums were high, the average of the last 10 years was taken; if low, the last 5 years were used. In this way, the indicator-based calculations updated the value of premiums.
After 2000, the indicator system was replaced by an update method using the consumer price index (CPI) annual increase plus the full growth rate of national income. After 2008, while the CPI component remained fully included, the share of national income growth used in the update coefficient was reduced from 100% to 30%. In other words, during 2000–2008 the full annual GDP growth was applied to update earnings subject to premiums, but after 2008 only 30% of that growth was taken into account.
Lowering the Minimum Pension Also Contributes
Another reason pensions can be lower is the reduction of the minimum pension threshold. Pensions from periods before 2000 could not fall below 70% of the relevant base, while after 2008 the minimum pension was set at 35% of the gross minimum wage. Those who started working before 1999 and retired after 2008 have pensions calculated under a mixed system that reflects these three different periods.
Calculations are performed separately for the pre-2000 period, the 2000–2008 period, and the period after 2008. For workers whose earnings are at or near the minimum wage, extending the working period after 2008 can actually reduce their pension instead of increasing it. Conversely, for those whose gross wage exceeds 2.5 times the minimum wage, the pension generally increases as they continue working.
When someone continues working at or near the minimum wage level, each additional 360 days of work can reduce the pension by approximately 30–40 Turkish lira. The exact reduction cannot be predetermined because it depends on which period the days fall into and the earnings used as the premium base. At present, there is no firm method to fully prevent this pension decrease.