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AUTOMATIC INVOLVEMENT OF EMPLOYEES IN PRIVATE PENSION SYSTEM

The Law numbered 6740 amending the Law numbered 4632 (hereinafter referred to as the “Law numbered 4632”) on Individual Pension Savings and Investment System (in Turkish “Bireysel Emeklilik Tasarruf ve Yatırım Sistemi Kanununda Değişiklik Yapılmasına Dair Kanun”) (hereinafter referred to as the “Amending Law”) which was published in the Official Gazette dated 25 August 2016 brings an innovation to Turkish Employment Sector, and replaces voluntary private pension system by a mandatory private pension scheme. The Law aims to improve the welfare level of the employees by providing a supplementary income during retirement and to increase the domestic savings crucial for preventing fragility of the Turkish economy.

Below you may find some important aspects of the new system that is planned to come into force phase by phase by taking into consideration the number of staff employed by the employers, and that governs various obligations for the employees as well.

The Private Pension System

As per article 4 of the Law numbered 4632 entitled as “Participation in Pension System and the Pension Contract”, a person who wishes to be involved in the Private Pension System shall sign a contract (hereinafter referred to as the “Pension Contract”) with the retirement company (hereinafter referred to as the “Company”). As defined in the same article, the Pension Contract stipulates basis and procedures with regard to opening an individual retirement account, contribution payments to that account, fund management, payment of the accumulated fund to the right holders and other rights and obligations that both parties have within this context. Pension Contract can be executed as an individual pension contract directly with the participant or as a group contract on the basis of an employment relationship, or with an organization on behalf of the Participant.

Automatic Involvement of Employees in the Private Pension System

    (i)Scope As per the additional article 2 of the Law numbered 4632 that has been added by the Amending Law, every Turkish citizen working on salary basis (employed by one or more employer through an employment contract or public sector employees) under or at the age of 45 shall be included in a pension plan through a Pension Contract executed by the employer with the Company in accordance with the provisions of the Law numbered 4632. The Company that the employer may choose shall be amongst the ones approved by the Undersecretariat of Treasury.

   (ii) Contribution As per the aforesaid article, the minimum monthly contribution amount that will be deducted from the salaries of the employees under or at the age of 45, who already work in public or private sector or are newly employed, shall be 3 percent of the basic income (in Turkish “prime esas kazanç”). The Council of Ministers is authorized to increase or decrease this percentage within certain limits mentioned in the article.Contribution shares paid by the employees will be supplemented by government contribution of 25 percent under the same conditions as the existing private pension system brings. Employees will be given a two-month term to discontinue the system and at the end of this term, a government contribution of TRY 1,000 shall be provided only for once to those who decide to remain in the system.

(iii)Withdrawal Right of the Employee

As per the Law numbered 4632, participant employees may get out of the system within 2 months as of the date that they are informed about being included in the pension plan. In such a case, the accumulated amount of contributions and investment income, if any, shall be refunded to the employee within 10 business days.An Employee who does not use his/her right of withdrawal may require suspension of contribution payment under certain conditions, to be determined by the Undersecretariat of Treasury.

(iv)Change of Place of Business

If the employee who has a pension plan as per the Law numbered 4632 changes his/her place of business, employees accumulated savings and retirement time basis gained in the system will be transferred to the Pension Contract of the new place of business. However, if the new place of business does not have a pension plan, the employee may continue to pay contribution as per the pension plan of the previous place of business or may terminate his/her pension contract as per the Law numbered 4632. Employer’s Obligations and Administrative Fine

As per the additional article 2, brought by the Amending Law, the employer shall have to sign a Pension Contract with at least one of the Companies authorized by the Undersecretariat of Treasury to regulate the pension plan for automatic participation. While choosing the Company, the employers should consider the quality of service and the advantages offered to the employees. The deducted amount from the salary shall be transferred to the Company latest on the day following the payment of salary to the employee. If the contribution amount is not transferred to the Company duly and on time, the employer shall have to compensate the financial loss that might occur in employee’s savings. The Employer shall provide automatic involvement of the employee to the system and shall accordingly advise the employee of this involvement. In the case of employer’s noncompliance with the Law numbered 4632 and other related arrangements to come into effect, TRY 100.- administrative fine will be imposed on the employer by the Ministry of Labor and Social Security (in Turkish “Çalışma ve Sosyal Güvenlik Bakanlığı ) for each infringement. The secondary legislation related to this new system including the gradual date of effect for the employers’ obligations is expected to come into force at the beginning of 2017.

Our firm remains at your disposal for any further clarifications you may need.

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