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A new vesting law for the private pension system

A new vesting law for the private pension system

Changes made in Turkey’s private pension system (PPS), which has recently completed its fourth year of life, inaugurates a new period in this system’s operation. A new insurance law introduces a vesting rule which goes into effect on 9 August 2008 and which now provides for greater flexibility concerning the contributions that employers pay into the system on behalf their employees.

The vesting period

The vesting period is the amount of that an employee must spend in the private pension system in order to become entitled to (vested in) all of the contributions paid by an employer into his private pension account based on the amount of time that he has worked for that employer. The vesting period cannot be more than five years however.

Vesting periods

When an employee leaves his job, then depending on the terms in his former employer’s group pension plan:

a) he becomes entitled to 20% of the employer’s contributions for each year of employment if the vesting period is five years;

b) he becomes entitled to 25% of the employer’s contributions for each year of employment if the vesting period is four years;

c) he becomes entitled to 100% of the employer’s contributions f if the vesting period is three years or less.

If an employee voluntarily quits his job or if his employer or sponsor terminates him for justifiable cause:

The employee may leave the private pension system taking the vested amount of the contributions paid into his own account by the employer or sponsor less any deductions that are required by law;

They employee may elect to remain in the system, in which case the portion of the employer’ group pension plan in which he is vested will be transferred to a private agreement which is associated with the group and which has the same advantages as the group plan.

If a employee leaves before the sponsoring concern’s vesting period has completed:

The employer’s or sponsor’s share of the pension account will, at the employer’s / sponsor’s option, be repaid to the employer or else distributed among other participants in the same group, less any deductions that are required by law.

If the employee suffers disablement or death:

All savings will be paid to his beneficiary or legal heirs without any regard being given to the vesting period.

If an employer drops out of the system or goes into receivership:

The employee becomes entitled to all savings and contributions without any regard being given to the vesting period.
Contributions

The amount that an employee pays as contributions may never be less than 5% of his gross monthly base pay. The minimum amount that an employer or sponsor may pay on a group pension plan may not be less than the legally prescribed amount.

For more detailed information about group pension plans and vesting, send an e-mail to kurumsal@garantiemeklilik.com.tr