Withdrawal, Retirement, and Entitlement in Private Pension Plan (BES) Contracts
Withdrawal, Retirement, and Entitlement in Private Pension Plan (BES) Contracts
Entrance
Millions of people in Turkey have joined the Individual Retirement Savings and Investment System (BES) for both savings and supplementary income . The Individual Retirement Savings and Investment System Law No. 4632 defines the legal framework in this area; the system operates in two different ways: voluntary and automatic participation.
However, in practice, the most debated issues the right to withdraw, retirement conditions , and vesting periods . The rights of participants who wish to withdraw from the system after joining, or who resign from their job or leave before the specified period, are particularly at the heart of legal disputes.
1. Legal Basis of the Individual Pension System
(BES) Law No. 4632 and the related Regulation on the Private Pension System .
The aim of the system is to enable individuals to save during their active working years, thus ensuring they have an additional income during their retirement.
1.1. Parties to the System
- Participant: An individual included in the system.
- Pension Company: The insurance company that manages private pension funds.
- Pension Supervision Center (EGM): The central organization that oversees all operations.
- The state: The party providing the 30% contribution.
1.2. Nature of the Private Pension Scheme Contract
A private pension contract is a savings and investment agreement.
The participant undertakes to make regular contributions; the company invests these contributions in funds.
However, the contract can be terminated at any time , and the participant has the right to withdraw.
2. Right of Withdrawal (2 weeks for automatic enrollment)
2.1. Legal Basis
Article 2/7 of the Additional Provisions of Law No. 4632 :
"Employees may exercise their right to withdraw from the automatic enrollment pension contract within two months of the contract's effective date."
2.2. Exercise of the Right of Withdrawal
- Duration: 2 months (60 days)
- Application Method: Through the employee's employer or directly to the pension company.
- Result: The participant will receive a full refund of all contributions paid, and any accrued interest, within 10 business days
The 11th Civil Chamber of the Supreme Court of Appeals, Case No. 2021/3413 E., Decision No. 2022/6438 K.:
“If a participant exercises their right to withdraw from the automatic enrollment system within two months, the company is obliged to refund the premiums without any deduction.”
2.3. Limitations of the Right of Withdrawal
- The right to withdraw expires after the specified period ; however, participants can leave the system through "early withdrawal".
- If you miss the cancellation deadline you are not obligated, but penalties will be applied upon exit.
3. Early Departure (Withdrawal After the Withdrawal Period)
Participants may withdraw from the system even after the withdrawal period has expired; in this case, the early withdrawal provisions will apply.
3.1. Early Departure Conditions
- Participants can withdraw from the system at any time before becoming eligible for retirement benefits.
- However, withholding tax (income tax deduction) and fund management fees are applied.
3.2. Withholding Tax Application
- less than 10 years and leave before becoming eligible for retirement will be subject to a 15% income tax.
- for more than 10 years and leave without becoming eligible for retirement, 10%.
- A 5% tax deduction is applied to those who become eligible for retirement or who leave their pensions due to death or disability
This regulation is based on Articles 75 and 94 of the Income Tax Law .
The 11th Civil Chamber of the Supreme Court of Appeals, Case No. 2019/7034 E., Decision No. 2020/8645 K.:
“The tax deduction on payments to participants who leave the Private Pension System early is determined according to the duration of their participation in the system; the rate of the deduction is not fixed.”
4. Retirement Rights and the Eligibility Process
4.1. Retirement Conditions (Law No. 4632, Article 6/1)
a participant to be eligible for retirement :
- in the system for at least 10 years ,
- 56 years old .
Unless both of these conditions are met, "retirement" status cannot be obtained.
4.2. Post-Retirement Options
Participants who have earned the right to retire:
- your savings in a single lump sum payment .
- Alternatively, they can receive regular pension payments through a retirement income plan
This second option is preferable, especially in terms of tax advantages.
4.3. Eligibility for State Contribution
Eligibility rates for government contributions vary depending on the length of time spent in the system:
| Duration of Stay in the System | Eligibility Rate for State Contribution |
|---|---|
| Less than 3 years | 0% |
| 3-6 years old | 15% |
| 6-10 years | 35% |
| Over 10 years of service (without entitlement to retirement benefits) | 60% |
| Retirement, disability, or death | 100% |
These rates Article 8/A of Law No. 4632 .
5. Legal Status of State Contribution
The government contribution is provided at a rate of 30% of the participant's contribution . However, this contribution is not transferred directly to the participant's account, but to a separate account held at the Pension Supervision Center
According to the Supreme Court's jurisprudence, this contribution a conditional form of public support and cannot be fully reclaimed in case of early withdrawal.
The 11th Civil Chamber of the Supreme Court of Appeals, Case No. 2020/4315 E., Decision No. 2021/7216 K., stated:
“The eligibility rates for state contributions are determined by law and are not subject to the company's discretion. Participants cannot request payments outside of these rates.”
6. Information Obligation in Private Pension Scheme Contracts
Pension companies are required to inform participants in detail before the contract is signed.
Article 14 of the Individual Pension Scheme Regulation :
- Contribution amount,
- Fund types and risk profiles,
- Right of withdrawal and time limit,
- Conditions for government contributions,
- Early departure deductions
should be explained clearly and understandably.
Failure to provide information may result in contract termination or compensation
The 17th Civil Chamber of the Supreme Court of Turkey, Case No. 2018/6744 E., Decision No. 2019/10832 K., stated:
"Failure to provide the participant with sufficient information regarding cancellation and deduction rates gives rise to liability for compensation on the part of the pension company."
7. Implementation Problems in Exercising the Right of Withdrawal
Here are some common errors encountered in practice:
- Notification of cancellation to the employer:
Notification must be made directly to the pension company; applications made through the employer may be considered invalid. - The 2-month period is incorrectly calculated:
The period starts from the date the policy comes into effect, not from the payroll date. - Delay in premium refund:
If the company exceeds the refund period (10 business days) after cancellation, an interest charge. - Don't mistake this for automatic enrollment:
The cancellation period for voluntary private pension contracts is not 2 months; these contracts are governed by "early withdrawal" provisions.
8. Court and Arbitration Disputes
Remedies for resolving disputes between participants and the pension company:
- Insurance Arbitration Commission (Law No. 5684, Article 30)
- Consumer Arbitration Boards (Law No. 6502 on Consumer Protection)
- Consumer Courts
The Supreme Court of Turkey accepts that private pension contracts are consumer contracts . Therefore, the principle of interpretation in favor of the consumer also applies here.
The 11th Civil Chamber of the Supreme Court of Appeals, Case No. 2017/4389 E., Decision No. 2018/11453 K.:
“Individual retirement contracts are considered consumer transactions, and the provisions of the Consumer Protection Law shall apply in resolving disputes.”
9. Lump Sum Payment or Monthly Income Plan for Retirement?
Participants who qualify for retirement have two different options:
- Lump Sum Payment:
All savings are received in a single lump sum. However, this may result in a high amount of income tax. - Retirement Income Plan:
Participants receive regular monthly payments in the form of a pension.
This method is more sustainable due to tax advantages and fund returns.
The company is obligated to respect the participant's preference and provide detailed information.
10. Conclusion and Evaluation
The Private Pension System (BES) is a state-supported model that encourages long-term savings. However, the sustainability of the system depends on the protection of participants' rights.
In this context:
- The participant their right to withdraw within 2 months .
- You will receive a full refund of your premiums after cancellation .
- Those who meet the conditions of 10 years of service plus 56 years of age are entitled to retirement .
- for government contributions is acquired gradually.
- Companies are legally obligated to comply with their disclosure obligations.
In conclusion, private pension contracts are strong contracts in both financial and legal aspects, but they require careful management. Participants must be aware of the terms and conditions for withdrawal, early exit, and vesting before signing the contract; and pension companies must fully fulfill their responsibility for transparency and providing information
Gozdenur TURNA
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