Voluntary Participation (IPS) Auto Enrollment System (AES) Funds Legislation Data Center

Employee Information Guide

1. Who is Included in the AES and How?

Pursuant to the Law No. 4632, employers shall automatically include in the AES the employees who are Turkish citizens or Blue Card holders and who have not turned 45. Accordingly, employers shall send to the system at least three percent of the premium-based earnings and of the pension deduction-based salary for the private sector and the public sector, respectively. Employees shall have the right to stay in the AES for as long as they wish.

The following gradual transition schedule shall apply when including the private sector employees in the AES:

Transition Schedule to Include Private Sector Employees in Automatic Participation

Number of Employees (*) Inclusion Date
1.000 and over 01.01.2017
Between 250 and 999 01.04.2017
Between 100 and 249 01.07.2017
Between 50 and 99 01.01.2018
Between 10 and 49 01.07.2018
Between 5 and 9 01.01.2019

(*) When determining the number of employees for employers with multiple businesses, the total number of employees at all businesses shall be counted. In addition, the number of employees shall be determined based on the most recent Social Security Institution data.

Gradual transition for the public sector:

Transition Schedule to Include Public Sector Employees in Automatic Participation
Inclusion Date Public Institutions/Organizations
01.04.2017 The public administration institutions stated in tables (I), (II), (III) and (IV) of the appendix to the Law No. 5018 on Public Finance Management and Control Law
01.01.2018 Local administrations, State Economic Enterprises, Municipality-owned Enterprises, and Other Public Institutions and Organizations

If you live in a country that does not have a social security treaty with Turkey (if you fall within the scope of article 5g of the Law No. 5510, for instance; if you are a Turkish employee who is taken by an employer to be put to work in a foreign country that does not have a social security treaty with Turkey) you shall not be entered in the AES.

Change of Employer

When you change your job, different rules shall apply depending on whether your new employer is in the AES system or whether you were entered before, and on what age you are.

If your new employer is in the AES;

  • If you have exercised your right of withdrawal after being entered in the system at your previous workplace or left employment and you were 45 or younger when you started your new job, you shall be entered in the system again.
  • If you have not exercised your right to withdraw from or leave the system you were entered in at your previous workplace, you shall transfer your current accumulations, along with your vested retirement period and state contribution account rights, to the new employer's plan.

If your new employer is not in the AES;

  • If you have not exercised your right to withdraw from or leave the system you were entered in at your previous workplace, you may continue to pay contributions yourself to your old plan or terminate it. In the event of continuation, you shall be transferred to the pension plan that your new employer will provide upon entry into the AES.
  • If you were not entered into the system at your previous workplace, the AES may be a good choice for you.

If your new workplace in the system?

Your age

Your status

What is the proposed application for you?

My new workplace is in the system

I am younger than age 45.

I am in the system that I had been entered in at my previous workplace.

Your accumulations shall be transferred to the pension plan at your new workplace.

I have withdrawn from/left the system that I had been entered in at my previous workplace.

You shall be re-entered in the system.

I am over age 45.

I am in the system that I had been entered in at my previous workplace.

Your accumulations shall be transferred to the pension plan at your new workplace.

I have withdrawn from/left the system that I had been entered in at my previous workplace.

You shall not be re-entered in the system.

My new workplace is not in the system

I am younger than age 45.

I am in the system that I had been entered in at my previous workplace.

You may continue to pay contributions yourself to the pension plan you had been entered in at your previous workplace.

or

You may leave the system or exercise your right of withdrawal.

I have withdrawn from/left the system that I had been entered in at my previous workplace.

You shall not be re-entered in the system.

I am over age 45.

I am in the system that I had been entered in at my previous workplace.

You may continue to pay contributions yourself to the pension plan you had been entered in at your previous workplace.

or

You may leave the system or exercise your right of withdrawal.

I have withdrawn from/left the system that I had been entered in at my previous workplace.

You shall not be re-entered in the system.

Employees with Multiple Employers

If have multiple employers and they report salary information to the SSI, you shall be entered separately to the plans offered by each employer in the AES.

Employees with Multiple Premium-based Earnings while Working for a Single Employer

If you work at multiple workplaces of a single employer, in other words; if multiple salary reporting is done to the SSI for you by the same employer, you shall be entered into the relevant pension plan for each workplace within the scope of the AES.

Employees that Leave Employment after just a short period of time

If you leave employment after working even for one day at a workplace, premium-based earnings will occur. Thus, you shall be entered into the system.

Employees with a Current Voluntary IPS Contract

There is no relation with your voluntary IPS contract and the contract as part of the AES. In other words, if you have both AES and IPS contracts at the same time, a separate account shall be opened for each, and no transfers can be made between these accounts.

2. How Can You Change Company, Plan and Fund Distribution in the AES?

Only the employer can change the pension company or transfer contracts to another pension company in the AES. Therefore, unless you begin working for another employer that is included in the automatic participation, you cannot change your pension company or transfer your accumulations to another pension company. You are not be allowed to change the pension plan, except for a plan change to request a plan with or without interest.

Nevertheless, it shall be up to you to decide on the funds for your contributions to be invested in. The AES offers fund options with or without interest, and you make your choice at the time of entry into the system. If you do not use your right to select, the employer shall decide on the funds to invest your contributions.

Fund Presentation Period

Accumulation Investment Funds

For the duration of the withdrawal period (Plan entry notice + 2 months)

Initial fund

End of withdrawal period + 10 months

If employee does not make a choice, Initial fund

If employee makes a choice standard fund or other funds

Plan entry notice + 1 year

If employee does not make a choice standard fund

Çalışan tercih belirtirse initial fund or other fund

The funds offered vary depending on the period that your certificate has remained in the system.

You are allowed a maximum of six fund distribution changes per year.

3. Do You Know Your Rights as per the AES?

  • Only a fund management fee deduction may be applied to your accumulations as per automatic participation.

No other deduction shall be made on your accumulations.

  • You may change the contribution amount.

The minimum contribution set by the Legislation is three percent. If you wish, you may increase the contribution by notifying your employer or reduce the increased amount again, provided that the minimum contribution amount stated in the Law No. 4632 is not below three percent.

You cannot make addition contributions other than the periodically paid contribution.

  • You may change the fund distribution.

You may change the fund distribution a maximum of six times per year after completion of the withdrawal period. You may exercise this right one year after entering the plan.

  • You may suspend contribution payments.

You may request suspension of your contribution payments. However, contribution collection shall re-start at the end of three months. You may extend the suspension period by notifying your employer or pension company. Extension of suspension may only be made for quarterly periods.

  • You may continue the payment when you change your workplace or leave employment.

Once your workplace changes, your new employer is required to enter you in the AES, if it is included in the AES. In that case, if you have a current AES contract with your previous employer, you may transfer your accumulations from it to your new contract.

If your new workplace is not yet in the AES, you may make payments to your current contract individually. In this case, you must submit your request to the pension company with regard to continuing your payments, by the end of the following month after the workplace change. Pursuant to the procedures and principles set forth by the Undersecretariat, your contributions must be at a rate of three percent of the minimum gross wage to be applied for at least the first six months of the relevant calendar year.

  • You may remain in the system for as long as you wish.

You shall be informed about your inclusion in the AES on the business day after your first contribution is sent to your pension company account in cash. You may request to withdraw within two months after this notice. You may also leave the system anytime after this two-month period.

  • After you have left the system, you may re-enter under certain conditions.

If you leave the system voluntarily, you may not re-enter for two years after the date you left as long as you keep working for the same employer. After completing the two years, if you have not turned 45, you shall be entered into the system automatically.

However, if you begin working at a another workplace that is included in the automatic participation system and if you have not turned 45, your new employer shall re-enter you into the system.

Once you leave the AES and re-enter, you shall not be given the 1,000 Turkish lira additional state contribution. You shall also lose the vesting periods for retirement and contribution arising from the contract you terminate.

4. Who Makes Your Contribution Payments in the AES? How Can You Track It?

Your employer deducts at least three percent from your salary and transfers it into the account opened in your name in the pension company. You can track the contribution payments you have paid and other account information on your pension company's website. You will also find contribution information on the "Employee Information Note" sent to you quarterly by your pension company.

You can view the contributions you have paid on the payslip provided by your employer.

If you employer does not transfer your contribution to the pension company on time or does so late or incomplete, the unpaid contribution and the returns you may have lost shall be collected from your employer and transferred to your pension account.

5. Do You Know That You Will Receive a State Contribution as part of the Automatic Participation?

As part of the AES, you shall receive;

  • State contribution at a rate of 25 percent of the paid contributions
  • An additional 1,000-Turkish lira state contribution, if you remain in the system at the end of the two-month withdrawal period
  • An additional state contribution that equals 5 percent of your accumulations, in case of opting to receive the right of pension as a 10-year annuity

State contribution shall be calculated as a commitment, and the committed amounts shall be recorded in your state contribution account. You shall be entitled to the amounts in your state contribution account in the following ratios:

  • 15 percent by staying in the system for at least 3 years,
  • 35 percent, by staying in the system for at least 6 years,
  • 60 percent by staying in the system for at least 10 years,
  • 100 percent in the event of retirement, death or disability

The 25-percent state contribution amount that is recorded as commitment shall gain value based on the CIP fluctuations at the beginning of the calendar year following the month when the state contribution payment is calculated. According to the vesting period, the amount you are entitled to shall be paid into your account in cash.

However, there is an upper limit to the state contribution that will be calculated for the contributions. The state contribution amount you can receive within a calendar year shall not exceed the total annual gross minimum wage that is calculated based on the gross minimum wage determined for the first and second half of the relevant year. The limit shall be calculated per each participant. The 1,000-Turkish lira state contribution shall not be included in the annual state contribution limit.

Separate state contribution limits have been set for the contracts within the scope of AES and IPS, respectively. In other words, if you are included in both voluntary IPS and the AES, based on the 2018 state contribution upper limits, you shall receive maximum 6,088.50 Turkish lira for your contract other than automatic participation, and also 6,088.50 Turkish lira, bringing the total state contribution amount to 12,177 Turkish lira.

6. Do You Know Your Employer's Responsibilities toward You?

Pursuant to the Law No. 4632, employers that fall within the scope shall enter into the AES the employees who are Turkish citizens and have not attained the age of 45. Accordingly, your employer has certain responsibilities toward you.

  • Selection of the pension company: If you have not attained the age of 45, your employer shall be obligated to draw up a contract with the pension company of its choice to ensure your inclusion in the AES.
  • Selection of funds: When you enter the AES, your employer shall ask your fund preferences with or without interest, and if you do not make a choice, it shall select one for you.
  • Payment of contribution: Your employer shall be obligated to deduct the contribution from your salary and transfer to your pension company accurately.

7. Do You Know Your Pension Company's Responsibilities toward You?

Subject

The Transaction to be Performed and the Legal Deadline Set for the Completion of This Transaction

Access to your automatic participation certificate

Your pension company shall be obligated to provide information about your automatic participation certificate within five business days following your entry in the plan.

Notification of your entry in the pension plan

Your pension company shall notify you that you have been entered into the pension plan on the business day after the first contribution that is deducted from your salary is transferred into your account in cash.

Employee Information Note

Your pension company shall provide quarterly contribution and deduction statements showing each period separately in the “Employee Information Note." ”

Account Statement

Your pension company shall provide you with the “Account Statement” along with important changes in the parameters of your pension plan and in the legislation within 10 business days following each accounting period.

Withdrawal process

Your pension company shall refund your accumulations within 10 business days after receiving the withdrawal request. The pension company shall bear the losses arising from delay of payment pursuant to the relative articles of the Law No. 3095.

Investing

The contributions you have paid must be invested by dividing up among the selected funds within the scope of your contract on the second business day at the latest following the transfer to your pension company in cash.

Fund distribution change

Your pension company shall be required to submit the fund trading instructions within two business days of receiving your fund distribution change request.

Leaving the system

If you choose to leave the system, your pension company shall ask you to complete the “Withdrawal Request Form”.

The accumulations in your automatic participation account must be paid within 20 business days following receipt of your Withdrawal Request Form by your pension company.

Notification on the risks of your investments

To ensure that your accumulations are less affected by financial market risks, your pension company shall provide a recommendation on your fund preferencesat least two years before you qualify for retirement. You are not required to accept the recommendation.

Vesting for retirement

You may leave the AES by exercising your right for retirement after staying in the system for 10 years and attaining the age of 56.

In this context, you must apply to the pension company with whom you wish to exercise your right for retirement. When your application is received, your pension company shall ask you to complete the “Retirement Request Form,” and the “Information Form,” and send you an “Account Statement”.

If you do not have any other contracts with other pension companies, then your accumulations will be paid to you, either partially or fully depending on the payment schedule you choose, within 10 working days of the receipt of the retirement request form by the pension company.

If you have contracts in multiple pension companies and qualify for retirement within the scope of the AES, you have to consolidate all your accounts under the AES into a pension company of your choice.

In this context, you must apply to the pension company with whom you wish to exercise your right for retirement. Within two business days of the receipt your retirement request, the pension company shall request pension companies that hold your other certificates to consolidate the accounts. Your account consolidation transactions shall be complete within five days of the request by the relevant pension company. Retirement transactions shall be completed within 10 business days following the account consolidation transaction.

8. When Do You Become Vested for Retirement in the AES? How Can You Receive Your Accumulations?

In order to retire from the AES, you must stay in the system for 10 years from the first date of entry into the system and have attained the age of 56. After meeting these conditions, you may stay in the system and continue paying contributions to grow your savings even more.

Once you earn and use the right to retirement,

  • You shall be entitled to request a lump-sum payment of some of your accumulations from the individual pension and state contribution accounts.
  • You can also choose to stay in the AES and receive your accumulations in part from the pension company according to the reimbursement plan you decide.
  • You may earn regular income by purchasing an annuity with some or all of your accumulations.

While you are exercising your right for retirement; if you purchase an annuity for at least 10 years, you shall earn the right for a state contribution that equals five percent of your accumulation amount.

9. What are the Tax Advantages of Exercising Your Right for Retirement

If you leave the AES, the pension company shall deduct income (withholding) tax on the payments due to you based on your accumulations. The withholding tax deduction rate is as follows:

  • Only five percent for vested participants in the system and for participants who leave the system due to reasons such as death, disability or liquidation,
  • Ten percent for participants who leave the system before becoming vested for pension despite having stayed in the system for 10 years,
  • 15 percent for participants who leave the system after having stayed for fewer than 10 years.

10. Payment of Accumulations to Beneficiaries or Legal Heirs in Case of the Participant’s Death

In case of the participant’s death, the accumulations, and if any, the money in the state contribution account shall be paid to the beneficiaries and legal heirs stated in the pension contract, without prejudice to the provisions of Turkish Civil Code No. 4721, dated November 22, 2001.

If the beneficiary(s) stated in the contract or if the beneficiary is not specified in the contract, the legal heirs, may legally request from the pension company to receive the accumulations in the individual pension account, including all state contributions.

Pension companies may request:

  • TurkStat Certificate of Death (depending on the place of death, taken from the health institution, municipal doctor, community health center, gendarmerie station commanders or village headmen)
  • Certificate of inheritance (received from notary public or the relevant court),
  • Form or petition prepared for the notification of death,
  • A copy of the identity of the heirs mentioned in the certificate of inheritance and the Turkish lira checking account details (e.g. IBAN) registered in their name,
  • Inheritance and gift tax no lien affidavit

to process the request.

Within twenty (20) business days of the request for payment of the accumulations by the beneficiary(s) or legal heirs, the company shall pay the remaining amount to the beneficiary(s) or legal heir(s), after deducting a 5-percent income tax on the participant’s accumulations.

If, upon the death of the participant,

  • The accumulation is to be paid to the legal heirs, the amount accumulated must be included in the heritage,
  • If the participant designated a non-heir third party as the beneficiary, the accumulation amount to be paid to the beneficiary must be considered as a gratuitous acquisition, the accumulation

(after being taxed as an earning on movable assets pursuant to Article 75 of the Income Tax Law) must be subjected to inheritance and gift tax.

For 2020, the inheritance and gift tax rates for hereditary or gratuitous transfers are provided in the table below.

Taxable Base Tax Rate (%)
Hereditary Transfer Gratuitous Transfer
First 350,000 TRY 1 10
Next 850,000 TRY 3 15
Next 1,800,000 TRY 5 20
Next 3,300,000 TRY 7 25
Above 6,300,000 TRY 10 30

In the inheritance tax for 2020; inheritance shares that correspond to each descendant and spouse, including adopted child(ren), have a tax exemption of 306,603 Turkish lira (613,582 Turkish lira in the inheritance share that corresponds to the spouse in the absence of any descendant) and 7,060 Turkish lira in gratuitous transfers.

On the other hand, the vested portion of the state contributions made to the individual pension account under the Individual Pension Savings and Investment System Law No. 4632 dated March 28, 2001 are exempted from inheritance and gift tax.

In the event of death, if you do not know whether the people you are a legal heir of have a pension contract or if there is a contract, but you do not now with which company, you may send your request to the PMC via the Contact Us page with a copy of your certificate of inheritance.