As of January 1, 2017, Turkey introduced an automatic enrollment version of the Individual Pension System (commonly known as BES), a model already in place in countries such as the United States, the United Kingdom, New Zealand, Italy and Chile. The automatic enrollment BES works somewhat differently from previous social security and pension arrangements, and many questions remain. In this article we explain how the automatic enrollment BES works and answer the question: which workplaces will start when?
What Is Automatic Enrollment BES?
The Individual Pension System enables people, through certain companies or banks, to set aside part of their salary as savings during their working life and later receive those savings as a pension if they choose. The system becomes “automatic enrollment” when the state mandates that employers automatically register their employees into BES. Starting January 1, 2017, Turkey’s system operates with automatic enrollment. That means employees will not need to give explicit consent for contributions to be deducted, although anyone who wishes may opt out within two months of enrollment and receive a full refund of the amounts paid.
Who Will Pay Contributions under Automatic Enrollment BES?
Automatic enrollment applies to employed persons aged 45 and under. In other words, employees born before 1972 are not included in automatic enrollment. Early estimates indicated that by the end of 2017 more than 14 million insured persons would be enrolled and make contributions through the automatic BES.
How Much Will Be Paid into BES?
Contributions deducted from employees’ salaries for BES are set at 3% of the pensionable earnings. This results in a minimum deduction of 53 TL and a maximum of 340 TL. Accordingly, annual savings through BES would range roughly from 1,800 TL to 5,500 TL. The law also grants the Council of Ministers authority to raise the contribution rate up to 6% or lower it to 1%.
In addition to employee contributions, the state provides contribution bonuses based on how long an insured person remains in the system: 15% for those who stay 3–6 years, 35% for 6–10 years, and 60% for those who complete 10 years. If a person remains at least 10 years and reaches age 56, the state contribution rises to 100%. Retirees who remain in the system for 10 years and then receive a pension from BES receive an extra 5% state top-up. These incentives are designed to reward participants who intend to remain in the program long term.
Is There a Right to Withdraw?
Yes. Participants automatically enrolled in BES have a right to withdraw. They may exercise this right within two months of enrollment and reclaim all contributions made up to that point without any financial loss. If they choose to leave after the two-month period, deductions may apply depending on the contract with the pension provider, and they could incur a loss from their pay. Therefore, it is usually advantageous for newly enrolled employees to use the two-month withdrawal right if they do not wish to remain in the scheme. Also note that leaving the system before three years not only may involve financial deductions but also forfeits eligibility for any state contributions.
When Will Automatic Enrollment BES Start for Each Workplace?
Because automatic enrollment BES is a new national application, implementation is phased to enable faster resolution of any issues that arise. Employees under age 45 will not all be enrolled on the same date; enrollment is scheduled by workplace type and size. The rollout schedule is as follows:
- Private sector employers with 1,000 or more employees: January 1, 2017
- General and special budget administrations (civil servants): April 1, 2017
- Private sector employers with 250–999 employees: April 1, 2017
- Private sector employers with 100–249 employees: July 1, 2017
- Local administrations and state economic enterprises (KİT): January 1, 2018
- Private sector employers with 10–49 employees: July 1, 2018
- Private sector employers with 5–9 employees: January 1, 2019
These dates are important for employers. Employers who fail to comply with the legal requirements and obligations can be fined 100 TL administratively by the Ministry of Labour and Social Security. In addition to the fine, employers are liable to compensate employees for any financial losses caused by employer negligence.
Employees and employers should be aware of the timetable and the withdrawal rules so that workers can make informed decisions within the opt-out period and employers can meet their legal obligations.