What is the Private Pension System?
The Private Pension System constitutes a special pension system which ensures that the persons become able to channel the savings made by them during their active working period to long-term investments and to generate an income which makes it possible for them to maintain their living standards in their retirement periods. Persons can generate income in addition to their retirement income provided by the social security system by participating voluntarily to this system.
The system is based on the principle of accumulation and investment of the contribution amounts/savings and payment of lump sum amounts or wages to the relevant person.
When was the system commenced??
The Private Pension Savings and Investment System Law was enacted on 28 March 2001 and it was published in the Official Gazette dated 7 April 2001 and numbered 24336. The law entered into force on 7 October 2001 which constitutes the date 6 months subsequent to its publication date. Upon the certification of the first pension plans on 27 October 2003, the pension companies commenced their activities.
What is the objective of the Private Pension System?
The primary objective of the Private Pension System is the generation of an additional income in the retirement period by channeling of the savings aimed at private pension to investments. Thus, the private pension system increases the wealth level of the persons in their retirement periods in which their active working lives have come to an end. The system also contributes to the development of the country by creating long-term resources for the economy.
Is it necessary to be registered before the Social Security Institution or to be in working status in order to participate in the system?
Everyone possessing the legal capacity is able to participate in the system. In terms of the Private Pension System, there is no condition with regard to being registered before the Social Security Institution or being in the working status. The Private Pension System constitutes the supplementary constituent of the compulsory social security system.
Does the Private Pension System provide the health, etc. services such as provided in the Social Security System?
Subsequent to participating in the Private Pension System, do the rights existent in the social security system lose their validities?
No. In terms of the Private Pension System, there is no condition with regard to being registered before the Social Security Institution or being in the working status. The rights arising from the social security system shall continue.
Is the Private Pension System a safe system?
The Private Pension System constitutes a system which was established upon examination of the best practices in Turkey and the world, that was assured by the state and which functions so well that it can be cited as an example. The pension activities of the companies is subject to the supervision of the Undersecretariat of Treasury and the accounts and transactions with regard to the company funds, portfolio managers and custodians is subject to the supervision of the Capital Markets Board (CMB).
In order to ensure the operation of the Private Pension System in a safe and effective manner and to protect the rights and interests of the participants, the activities of the pension companies are subject to the daily surveillance and supervision of the Undersecretariat of Treasury. The Undersecretariat of Treasury assigned the Pension Monitoring Center in order to ensure the conduct of this assignment.
Within the Private Pension System, what happens if any pension company faces financial problems?
Pursuant to article 17 of the Private Pension Savings and Investment System numbered 4632, “The funds assets cannot be put in pledge, they cannot be provided as collateral except for the transactions made with respect to the fund, they cannot be sequestrated or included in the bankrupt’s assets.”
Is the death coverage available in the Private Pension System?
No. The death coverage is not available in the Private Pension System. However, in the case where the participant deceases within the contract term, the savings of the participant, state subsidyand all yields of the participant shall be paid to the beneficiaries or legal heirs stated in the pension contract if available.
What is the private pension contract?
The private pension contract constitutes the contract which regulates the procedures and guidelines related to opening an private pension plan with the company, payment of contributions to the account, investment in preferred funds of the contributions paid and payment of the financial amounts accumulated in the account to the right owner and other rights and obligations of the parties.
How many types of private contracts are available? Who are the parties of the contract?
The private pension contract: Constitutes the contract within the scope of which the company and participant are available depending on the private pension plan. Private pension contract dependent on the group: Constitutes the contract within the scope of which the company and participant are available depending on the group pension plan. Employer group pension contract: It constitutes the contract which is signed between the sponsor corporation and the company on the basis of an employment relationship or for the benefit of the participant and pursuant to which the contribution is paid is by the sponsor corporation on behalf of the participant.
How can the pension right be deserved within the system?
Provided that the participant will be present in the Private Pension System for at least 10 years as from the date of entry in the system and that the participant has completed the age of 56, he/she will qualify for the pension.
In the case where more than one contracts are available, would the exit from the previous contract affect the qualification for the pension?
Yes, the period of staying in the system which arises from the terminated contract shall be inapplicable. The date of entry in the system shall be amended as the earliest contract which is still in force.
Is the right to purchase more than one pension contracts within the Private Pension System is available?
Yes. It is possible to purchase more than one pension contracts from the same company or from different companies.
Who can be chosen as beneficiaries within the Private Pension System?
The participant can designate the person or persons chosen by him/her as the beneficiary/beneficiaries The beneficiary/beneficiaries shall be stated in the contract. In the case where the beneficiary is not designated and the participant deceases, the savings shall be paid to the legal heirs of the participant.
Are the paid contribution amounts channeled to investment immediately?
The paid contribution amounts are channeled to investment on the second business day at the latest following the transfer of these amounts to the accounts of the company upon the provision of the required instructions with regard to the funds which are determined by the participant or the sponsor contribution if available.
Is it possible to make interim payments apart from the regular contribution payments?
The participant can make payments to his/her private pension account apart from the regular contribution amount at any time he/she wishes.
In which investment instruments the contribution amounts which are paid within the Private Pension System are invested?
The contribution amounts which are paid by the participants are invested in the funds established by the pension companies. The money market and capital market instruments which can be comprised in the fund portfolios are as follows:
- Time deposit accounts and participation accounts
- Debt instruments, repurchase and reverse repo transactions and the partnership interests,
- Precious metals, assets based on the precious metals and real estate,
- Derivative instruments and warrants,
- Settlement and Custody Bank money market transactions,
- Investment fund shares,
- Cash collaterals and premiums of the derivative instrument transactions which are executed in the stock exchanges,
- Lease Certificates,
- Other investment instruments which are determined by the Board.
Is it possible for the company to determine the investment preference in terms of the persons who do not wish to make any fund preferences?
The standard fund which is determined within the scope of the plan can be presented to the participants who do not make any fund preferences. With respect to the fund portfolio which is defined as the standard fund;
- Provided that at least sixty per cent of the fund portfolio shall be invested in the debt instruments,
- revenue sharing certificates or lease certificates in Turkish Lira which are issued by the Undersecretariat of Treasury and maximum forty per cent of the fund portfolio shall be invested in the deposit account/participation account in Turkish Lira, reverse repo, Settlement and Custody Bank money market transactions, debt instruments which are issued by banks or other issuers having the investment-grade credit rating provided that these debt instruments will be traded in the stock exchange, lease certificates which are registered before the Board or the share certificates traded in the Istanbul Stock Exchange-100 index or the participation index of the Istanbul Stock Exchange.
- The amount which will be invested in the share certificates cannot exceed thirty per cent of the fund portfolio. The amount which will be invested in the reverse repo and the Settlement and Custody Bank money market cannot exceed two per cent of the fund portfolio. Except for the issues executed by the Undersecretariat, more than ten per cent of the fund portfolio cannot be invested in the debt instruments or lease certificates which are issued by a single issuer.
How can the contribution amount payments be executed?
The contribution amount payments can be executed by means of the payments instruments stated in the contract. The instruments such as the automatic payment order which is given to the bank branch and credit card are frequently used.
Is it possible to change the fund distribution rates of the contribution amounts?
The distribution rates or amounts among the funds of the savings available in the private pension account and the paid contribution amounts can be changed maximum six times a year.
Can the fund distribution be changed?
The distribution rates or amounts among the funds of the savings available in the private pension account and the paid contribution amounts can be changed maximum six times a year.
Can the savings available in the Private Pension System be sequestrated?
The savings amount which corresponds to the multiplication of the number of months in which the participant is available in the system and the gross minimum wage amount applicable on the date of sequestration, pledge or bankruptcy cannot be sequestrated, put in pledge or included in the bankrupt’s assets except for the alimony debts.
What is the pension mutual fund?
The pension mutual fund constitutes the mutual fund in which the contribution amounts which are paid for pension are channeled to the investment. The pension mutual funds are established by the pension companies they are managed by the portfolio management companies.
What is the difference between the pension mutual funds and other investment funds?
The pension mutual funds are specifically established for the investment and management of the contribution amounts paid in the Private Pension System. These funds can only be purchased by the persons who enter in the Private Pension System. The withholding tax is not applied in terms of the profits made by the pension mutual funds. These funds are managed pursuant to investment strategies comprising longer terms.
Are there any restrictions in terms of the pension funds subject to investment?
No, it is possible to make investments to the preferred funds without being subject to any minimum and maximum limits. Therewithal, investment restrictions in parallel with the fund strategy in accordance with the risk return expectations of the participants in the target group can be available in the pension plans.
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Do the Pension Mutual Funds vary according to the type of the pension contract (group or private pension)?
The funds can be established in the form of group pension mutual funds in which the private pension mutual fund and fund shares aimed at the individual participants are allocated to the participants, persons or groups who/which are defined in the pension contract. Group pension mutual funds can be established on the basis of workplace or certain occupational groups on a sectoral basis and provided that it will be considered appropriate by the Capital Markets Board, by means of distribution of the fund shares to certain persons or groups.
How can the fund distribution be changed?
The participant can change the distribution rates or amounts among the funds of the savings available in the private pension account and the paid contribution amounts maximum 6 times a year. The change request which will be made accordingly can be executed in written form or via the call center of the company or through the secure page which is established on behalf of the participant in the website of the company.
What is the commencement date of the state contribution?
With regard to the contribution amounts which have been paid since 1 January 2013, the state subsidy is calculated.
Are there any upper limits in terms of the state subsidy to be calculated?
Yes, the state subsidy amount which can be received by a participant within a calendar year cannot exceed 25% of the gross minimum wage amount concerning the relevant year. The limit calculation shall be executed on the basis of participant.
Can the persons who pay the contribution amounts but do not pay the income tax receive state contribution?
Yes, all persons who pay contribution amounts to the private pension contracts or the private pension contracts dependent on the group can benefit from the state subsidy within the determined limits.
What is required to be executed in order to benefit from the state contribution?
To benefit from state contribution, there are not any special procedure to be followed by the participant after the payment of the contribution amount. The calculation of the state subsidy amount is automatically executed in terms of the paid contribution amounts and no statement or notification of the participant is sought.
In terms of the contribution amount payments which are executed by means of the credit card, is the state subsid yamounts is calculated at the time of collection via the credit card?
No, the month in which the contribution amount is transferred to the accounts of the company at the end of the blockage period in terms of the collection shall be taken into consideration with regard to calculation of the state contribution.
When will the state subsidy amount which is calculated in terms of the paid contribution amount be deposited to the account?
The state subsidy amount shall be transferred to the pension account within 3 months subsequent to the payment date of the contribution amount.
Is the state subsidy amount which is available in the account be refunded to me in case of death?
In this case, the participant shall be entitled to the entire amount available in the state subsidy account. This amount shall be paid to the beneficiary or beneficiaries who are determined by the participant.
When did the new period commence in the Private Pension System?
The new period in the Private Pension System (PPS) commence on 1 January 2016.
What are the fundamental changes which are made within the scope of the Private Pension System?
Along with the new period of the Private Pension System, the deduction structure has been subjected to change.
The changes which are made within the scope of the new regulation that entered into force as of 1 January 2016 covers both the current contracts and new contracts to be sold.
- Only in the first 5 years of the contracts, the administrative expenses fee and entrance fee can be collected. This amount corresponds to 8.5% of the monthly gross minimum wage for each year. (The gross minimum wage which is applicable in the relevant calendar year)
- Meanwhile, the fund total fee is not comprised within the scope of the deductions to be made with respect to the first 5 years. The fund total fee is collected during the period in which the contract is in force.
- The deduction controls will be commenced to be executed as of the 6 th year of the contracts. One of these deduction controls is the control which is associated with the state subsidy to be made in the case where the contract expires. (The total amount of deductions which will be made as from the effective date of the contract until the expiration date of the contract shall not exceed the amount which will be calculated by using the rates which are stated in the regulation in terms of the amount which is available in the State subsidy account within the scope of the contract on the expiration date of the contract. These rates shall be 60% with respect to a contract in its 6th year, 70% with respect to a contract in its 7th year, 80% for a contract in its 8th year, 90% for a contract in its 9th year and 100% for a contract in its 10th year and above. With regard to the execution of this control, the relevant application shall be commenced as of 01.01.2021.)
- Furthermore, the refunds with respect to the fund total fee shall be executed as of the 6th year of the contracts. (Detailed Information: In terms of the fund total fee, the refund rate shall be 2.5% for the 6 th year and the rates between the 7th and 14th years shall be applied by increasing the refund rate which is applicable in the previous year by 2.5% for each year. While determining the refund rate, all periods which continue within the contract as from 01/01/2013 shall be taken into consideration. With respect to the part below 1.1% of the savings amount which is available as of the calculation date of the deduction, refund shall not be applied.
- The refund shall be executed on the basis of contract and by taking as a basis the anniversaries of the contracts. The refund shall be made in the case where the contract is terminated (by means of transfer to another company or exit from the system) subsequent to 01.01.2021 and in any case, at the end of each contract year subsequent to the mentioned date and within this scope, the fund total fee deductions which were executed prior to the mentioned date shall not be refunded within this scope.)
What are the differences between the previous and new period of the Private Pension System?
You will be more profitable so long as you stay for longer periods within the system. In the case where you leave your contract within the first 5 years, the defined deductions shall be executed in your plan. However, in the case where you leave your contract subsequent to the 5 th year, both the Fund Total Fee refunds shall be commenced and the deduction controls regarding the State subsidy shall be executed. For the reason that you will be entitled to the refunds according to these controls, you will be profitable.
What is state contribution?
The state subsidy means the transfer of the additional amount at the rate of 25% of the contribution amount deposited by the PPS participants to a separate account which is opened on behalf of the participant.
To whom the state subsidy is provided?
“The state subsidy is provided with regard to the contribution amounts which are paid by the participants who are the citizens of the Republic of Turkey, who lost the Turkish citizenship by obtaining the permission with regard to ceasing the Turkish citizenship and their descendants or on behalf of these persons regardless of being a taxpayer or not. The maximum state subsidy which can be benefited by the participant is limited with 25% of the total gross minimum wage with regard to the relevant calendar year.”
How do the participants collect the state subsidy amount?
The state subsidy amount has been deposited by the Undersecretariat of Treasury to the accounts of the private pension participants which are opened by their companies on a monthly basis as from 1 January 2013.
Is any limit applicable in terms of the state subsidy which can be benefited by the participants in the new Private Pension System?
By means of the new regulation, 25% of all contribution amounts which are deposited to the Private Pension System are added to the private pension accounts of the participants as the state subsidy amounts. The maximum state subsidy which can be benefited by the participant is limited with 25% of the total gross minimum wage with regard to the relevant calendar year.
Will the persons who entered the Private Pension System prior to 1 January 2013 be able to benefit from the state subsidy as well?
The private pension participants will be able to benefit from the state subsidy as from 1 January 2013. No contributions shall be provided with respect to the previous periods.
What is the entitlement period in terms of the state contribution?
The state subsidy constitutes an application which is implemented in order to incentivize the participants to stay in the system for long periods. For this reason, restrictions are stipulated with regard to entitlement of the state subsidy in case of early exit from the system. In the case where the applicable period of the pension contract in the system as from 1January 2013 is from three years to six years, the participant will be entitled to receive 15% of the state subsidy and yields, in the case where the applicable period is from six years to ten years, the participant will be entitled to receive 35% of the state subsidy and yields and if the applicable period is ten years and more, the participant will be entitled to receive 60% of the state subsidy and yields. In the case where the applicable period is longer than 10 years and after the age of 56 for the participants, in other words when the participant qualifies for the pension (and death or disability), he/she will qualify for the entire amount of state contribution. The calculations shall be made on the basis of pension contract.
How is the amount which is deposited with respect to the state subsidy invested?
The state subsidy is regulated under the supervision of the Pension Monitoring Center. With respect to the paid contribution amounts, a separate state subsidy shall be defined in terms of the pension contracts and the amount which will be paid by the state shall be invested in this account. The state subsidy shall be kept in the Settlement and Custody Bank on behalf of the participant and it shall be invested in the pension mutual funds. However, the types of pension mutual funds in which the state subsidy will be deposited shall be determined by the Undersecretariat of Treasury.
Is it necessary to make a notification for the persons who have more than one contracts in the Private Pension System in order for them to benefit from the state contribution?
It is not necessary to make any notifications with respect to benefiting from the state subsidy in terms of more than one contracts of the participant.
Will the participants of the Private Pension System be able to receive state subsidy in the case where they have more than one contracts?
The amount which corresponds to 25% of the total amount of contributions made by the participants with respect to all their contracts shall be added as state subsidy in the manner which will not exceed 25% of the annual gross minimum wage.
Will the participants who wish to reenter the system upon exiting from the Private Pension System be able to benefit from the state subsidy as well?
The participants who are available in the system on 29 May 2012 and who terminate their pension contracts within two years as from 29 June 2012 will not be able to receive state subsidy in terms of the contribution amounts paid by them to the Private Pension System until 31 December 2014.
How is the tax deduction implemented in the new period of the Private Pension System?
The tax deduction is only implemented in terms of the yields.
