Individual Retirement System (BES) is a private retirement system enabling its members to receive a pension sufficient to preserve their living standards by exploiting the savings they made during their work career in long-term investments. Members voluntarily belong in it and are entitled to receive a pension from it in addition to the pension they will receive from the Social Security Agency. In other words, members of BES receive a second pension after they retire to keep their living standards and subsistence level. Furthermore, people will tend to save during their work careers and to invest in their future. Every person age 18 or over and having legal capacity may belong in BES whether or not they are members of the Social Security Agency system. Individual Retirement System is based on the principle of collecting contributions/savings from its members, assessing those funds, and repaying a bonus or a regular pension to the member after he/she retires. Unlike the Social Security Agency system, BES does not provide its members with any healthcare service or other services. Individuals do not have to quit the Social Security Agency system after they belong in BES. In other words, BES is not an alternative part of, but complementary to the Social Security Agency system. The period lived as a member of BES is not related with the period lived as a member of the Social Security Agency system. The retirement rights earned by a member in the Social Security Agency system may not be transferred to BES, because the two systems are completely different. The former is a public agency backed by the Government, the latter is a private sector legal person and is therefore not obligatory. Individual Retirement Savings and Investment System Law was passed on 28 March 2001, the first retirement plan established under the said law was approved on 27 October 2003, so that certain retirement plan companies were started. With the said law the Government aims to increase the individual savings, to ensure individuals to receive an additional pension and to raise their welfare levels after they retire, to encourage them to invest their savings in long-term funds in order to create long-term funds for the economy, to create employment and to contribute to improvement of the economy.
Institutions licensed by the Undersecretary of Treasure are entitled to start retirement plan companies, to collect contributions from their members for their retirement system, and to let licensed portfolio management companies manage those funds. Contributions collected from members of BES are exploited by retirement plan companies by establishing various types of fund at different risk levels and by letting portfolio management companies exploit those funds in money market and capital market instruments. Retirement plan companies are audited by the Undersecretary of Treasure; portfolio management companies and investment funds are audited by the Capital Market Board. Furthermore, assets of retirement plan companies are independent from assets of retirement investment funds. The same rule applies to portfolio management companies too, so that assets of investments funds are independent from assets of portfolio management companies. Individual Retirement Savings and Investment System Law orders that the assets in the BES may neither be pledged, nor be used as a guarantee for any transaction except for portfolio transactions, nor be attached in favor of third parties, nor be handled by committees of bankruptcy. In other words, the assets in an investment fund are protected by law. This rule applies to portfolio management companies and investment funds too. Funds managed by portfolio management companies may neither be pledged, nor be handled by committees of bankruptcy, nor be used as a guarantee. Thus it is intended to establish a safe private retirement system, and the Government subsidies 25% of the contributions paid to BES to encourage citizens to it. Maximum subsidy made by the Government is limited to 25% of the annual minimum wage per year. For example, the annual minimum wage income is TL 12,000, so that the Government subsides maximum TL 3,000 of it, and no other subsidy is provided by the Government for the total 12,000 TL paid to BES. Members belonging to the system for 10 years and reaching age 56 is entitled to retrieve the total contribution they had paid. Different withholding tax ratios are applied to the returns of this system to encourage members to remain for a long time in the system. As a result, long-term funds may increase and may be used for long-term investments in the future.
As to the risks which might be faced by members of BES with regard to the capital markets, it should be noted that the contributions paid by the members to BES are invested in retirement investment funds preferred by the members. Such funds contain share certificates, fixed return securities, precious metals, etc. For example, if some of the contributions are invested in a retirement fund consisting of share certificates and if those share certificates are devalued, the members’ fund will decrease in proportion with the devaluation of those share certificates. In this case the members’ savings will be devaluated too. However, each member is entitled to select the risk to be taken. A member can prefer a fund providing lesser return and lesser risk, or a fund providing higher return and higher risk. Portfolio management companies can establish a retirement fund based only on share certificates, or a fund consisting of participation accounts, lease certificates or mixed financial instruments. The structure of a fund depends on members’ perception of risk. A member can prefer a fund established in accordance with the interest-free financing principles, or other types of fund.
Tablo : 5.10 BES Fund Total AuM