Automatic Enrollment is coming!
A new era begins in BES (Private Pension System). The automatic enrollment, which is expected start on January 01, 2017 bringing a breath of fresh air to BES, is based on the principle of automatic inclusion of employees under 45 years old registered with the Social Security Institution (SGK) and working in the private or public sector in the Private Pension System.
What is new in the Automatic Enrollment intended to encourage employees to make savings?
• A contribution of 3% of the employee’s earnings taken as a basis to premium
• An additional one-off government contribution of TL 1000 on top of the 25% government contribution
• A further additional contribution of 5% in case of preferring a pension income plan
WHY Vakif Pension?
Vakıf Pension is one of the most important subsidiaries of 100% locally-owned VakifBank. As a leading company with a 25 years of experience in the sector, it is an important heir to the Foundation (Vakif) Culture:
Vakif Pension manages a fund volume of over TL 4.2 billion in the Private Pension sector, serving more than 440 thousand participants. The interest-free funds total of Vakif Pension has reached TL 647 million as of September 22, 2016, making the company the leader of the market with a share of 20.25% among all the other Private Pension participation funds.
• The first mobile branch in the sector
• The first WhatsApp customer services to be offered in the sector
• The first company to heavily use digital channels
• The first company that can produce Customized Life Insurance Premium through using Wearable Technology
• The first product in the Participation Insurance (Takaful) sector
• One of the first among the Pension Companies to implement Automatic Enrollment pilot scheme
Questions and answers regarding automatic enrollment
1. Who are eligible for automatic enrollment?
The implementation includes any existing or future employees under age 45 who are Turkish citizens or who have a blue card. Private sector employees will be included in the system gradually upon the Cabinet Decree considering the size of their place of employment.
2. Will government personnel be also included in the automatic enrolment system?
The application includes also all government personnel under 45 years old.
3. Is the automatic enrollment a compulsory application?
Registration with the system is compulsory; however, participants shall be free to leave the system based on the conditions defined.
4. Will employees enter the system on their own?
No, the registration with the system will be performed by their employing business place.
5. Which companies does the automatic enrollment cover?
As per the Law, this is an authority vested with the Cabinet who shall make the necessary arrangements.
6. How will contribution be paid for Private Pension System (BES)?
Employer is responsible to deduct the relevant amount from the salary paid to the employee every month and transfer such amount to the company no later than the business day after the date when the employee is paid. In case of any delay in performance of such responsibility, the employee shall be charged a delay penalty of TL 100 per violation as determined during the audits to be performed by the Ministry of Labor and Social Security.
Salary * x 3% and the illustration will be kept.
*Salary stands for the income that is basis to the premium.
7. What are the minimum and maximum amounts to be deducted from the salary of an employee?
For any employee, the amount corresponding to 3% of the income that is basis to the premium shall be deducted from the salary every month and deposited into BES. If the employee earns minimum wage, monthly TL 50 will be deducted from the salary, making up to TL 600 a year, on the basis of the current calculation method and deposited into BES. The upper limit of the income basis to the premium is TL 10,705.50 for the year 2016 whereas the contribution that could be paid by employees have yet to be determined.
In short, the lowest monthly amount to be deducted for automatic enrollment is TL 50 based on current** calculation. If a given employee’s income that is basis to the premium is TL 3,500, the monthly amount to be deducted and deposited by the employer to the automatic enrollment plan shall be TL 105 (TL 1,260 per year). ** Calculated based on the Minimum Wage prevalent in 2016.
8. Does an employee have the right to temporarily discontinue paying contributions ?
Employees who have not exercised their right to leave the system early may temporarily discontinue paying contributions if they desire. Conditions of temporary discontinuation have yet to be defined by the Undersecretariat of Treasury.
9. Will the employer contribute in the automatic enrollment system just like the employee?
No, only employees will pay contributions in the automatic enrollment system.
10. Does an employee have the right to leave the system?
Employees may request for leaving the system within 2 months from being notified of the entry into effect of their contracts. If that is the case, such employees will have used their right of “withdrawal”. Participants may leave the system any time after expiration of the withdrawal period. Conditions of withdrawal will become clearer upon new legal arrangements.
11. In case of exercising the right of withdrawal, will there be any deduction from the contributions paid?
No, no deduction shall be made. In the event an employee exercises his or her right of withdrawal, the contributions paid plus the investment proceeds in the account, if any, shall be returned to the said employee within ten workdays.
12. When will an employee become eligible for retirement from the automatic enrollment system?
The conditions defined for the existing BES applies for the automatic enrollment system, as well. Employees who have been registered with the system for 10 years and have turned 56 will become eligible to retire.
13. In case of leaving the automatic enrollment system early, will it be possible to receive the government contribution in full?
No, eligibility for government contributions are subject to temporal conditions. The relevant regulation is the same with the applicable regulation on the government contributions. Currently, the eligibility periods for the government contribution, be it the 25% contribution or additional contribution of TL 1,000, are as given below:
|Period (Year)||Age Criteria||Percentage of Eligibility for Government Contribution|
|3 < period < 6||NONE||%15|
|6 ≤ period < 10||NONE||%35|
|> 10||Not having turned 56||%60|
|≥ 10||having turned 56||%100|
14. What happens when an employee changes job?
If the new workplace has a pension plan under the automatic enrollment system, the savings of such employee and the period that is basis to retirement shall be transferred to his or her pension contract with the new workplace. In the event there is no pension plan in the new workplace, the said employee may continue paying contributions for the contract drawn up in the former workplace. If the employee does not make such a request, the pension contract is terminated. The employee is required to notify the company of his or her such request no later than the end of next month from the change of workplace.
15. Will the government make contributions for those who enter the system?
The government will make three different contributions in the process.
• The government will contribute 25 percent in the contributions deducted from salaries and paid to the BES. In other words, when TL 100 is deducted from your salary and deposited into your pension account per year, the government will deposit TL 25 into your account every month.
• The government will pay an additional one-off contribution of TL 1,000 under the prevalent conditions of eligibility for government contribution to any employee who does not exercise the right of withdrawal.
• In the event the participants who have become eligible to retire prefer taking out an income insurance for minimum 10 years, the government will pay an additional contribution up to 5% of their savings.
16. What happens when the employer fails to transfer to the BES the amount deducted from the salary?
The employer shall be responsible for any monetary loss incurred by the employee in his or her savings if such employer fails to transfer the contribution to the company or transfers it late/not in full or does not register such employer with the system. The employee shall be charged an administrative fine of TL 100 for each violation by the Ministry of Labor and Social Security.
17. Will the employees who already have contracts in the Private pension system (BES) will be included in the automatic enrollment?
Yes, all employees who are eligible for being included in the automatic enrollment system will be included in the system.
18. Will the employees who are already in the BES be eligible for benefiting from the government contribution of TL 1,000 in addition to the 25% contribution?
No, this right is only granted to those participants of the automatic enrollment system who are included in the automatic enrollment plans and have not exercised their right of withdrawal.
19. What are the Advantages of Automatic Enrollment for those participants who have already been registered with the Private Pension System?
Existing participants will have the advantage of 25% government contribution from their automatic enrollment contract in addition to the 25% contribution from their existing contracts.
20. Will the government contribution limit that applies to a participant who has a BES contract that is not covered by the automatic enrollment apply to such contracts, too? Or, will the upper limit for the government contribution be defined separately for automatic enrollment?
For the contracts under the automatic enrollment system, the upper limit for government contribution shall be calculated separately from the upper limit of government contribution that applies to BES agreements. For example, for the year 2016, when the maximum government contribution is calculated as TL 4,941 for a contract not covered by the automatic enrollment, an additional government contribution of TL 4,941 shall be calculated for the contract covered by the automatic enrollment system.
21. Is it possible to merge the periods that are basis to retirement and Government contribution under the automatic enrollment system with the periods that are basis to retirement and Government contribution under other BES contracts?
The periods that are basis to retirement and Government contribution along with the other rights and liabilities under the automatic enrollment system may not be merged with the BES contracts not drawn up under the automatic enrollment system.
22. Will deductions be made from those who enter the system through automatic enrollment?
As long as they are in the system, employers shall not be charged any deductions from their savings in their pension accounts except for the Deduction for Fund Expenses Total (FTGK).
23. In which funds will the savings of employees be improved?
At the time of entry in the system, the employer shall ask the employee if he or she prefers interest-bearing or interest-free funds and make such decision for those employees who have not indicated any preference.
Since companies will be responsible to ensure that the fund does not depreciate throughout the withdrawal period, the savings are expected to be improved in the no-risk funds for the first two months. At the end of such period, the savings will be improved in the interest-bearing or interest-free funds offered by the pension companies preferred by the employer. The funds will also be chosen by the employee.
24. Is it possible to pay additional contributions under the Automatic Enrollment?
No contributions will be paid other than that is deducted from the salary of an employee.