Effects of the New Pension Regulation over the Turkish Business Life

October 6, 2022by Bünyamin Esen0

Although the details are not yet cleared out, the “early retirement” law, which will make important adjustments to the Turkish social security regime, is expected to come to the agenda of the Turkish Grand National Assembly in December and become law in the first months of 2023. It should be underlined that in addition to the definitive statements by the government officials that the early retirement pension law will be enacted, this has to be noted that all parties in the Turkish Parliament also support this law.

Although the details of the regulation to be introduced are not yet clear, it will be possible for between 1 million and 5 million people to retire, depending on the scope of the provisions. Considering that there are currently 13.5 million retirees in Turkey, it is possible to experience a significant increase in the number of retirees with this new step.

The regulation to be lowering the retirement age for the insured who have started working beforethe date of September 8, 1999 will have important consequences for companies and businesses. The new pension arrangement is expected to have significant consequences, especially for human resources units and financial units.

These results can be listed as follows:

– The new law will cause a rush to leave the job due to retirement in all workplaces and ill economic sectors. Turkish employers are expected to have to pay billions of Turkish Liras as severance pay in the first half of 2023, as workers who leave their jobs due to retirement can receive severance pay, according to the Turkish Labor Code No. 1475.

– While the severance pay ceiling, which increases each year proportionally to the civil servant salary coefficient, is still approximately 15 thousand TL, is expected to reach the 23-25 ​​thousand Turkish Lira band in January and to reach to the 33-35 thousand Turkish Liras band in July 2023. For this reason, it will be costly for employers to be late in severance payments.

– Although all corporate firms have set aside provisions for severance pay in their financial statements, this new regulation creates a serious unexpected burden for small and medium-sized enterprises.

– Many people will retire and continue to work subject to social security support premium. Employees subject to social security support premium cannot benefit from any incentives, including the 5 Point Premium Incentive according to the Turkish Social Security Law. For this reason, after the new law, the amount of premium incentives will decrease as much as the rate of employees who retire in their workplaces. Employers’ total labor costs will increase.

– Some of those who retire by benefiting from the new law will prefer not to work by getting their pension. This means that companies lose a significant amount of trained human resources. In a period when it is so difficult to find qualified human resources, there will be a significant loss of talent in companies.

– Some of those who will retire under the new law will join the “Great Wave of Resignation”. In other words, he/she will be transferred to another workplace with a higher salary. Those who are not resigning for not loosing their severance payments can be able to prefer to transfer to the rival of the workplace with a higher wage.

– A loss of 10-20 percent of skilled personnel in the workplace due to retirees will reveal new career opportunities among the personnel. Internal transfer, promotion and reward mechanisms will need to be reorganized and run. Talent management will be an utmostly important mechanism in the Turkish companies in 2023.

– Due to the high increase expected to be made in the minimum wage in January 2023, it will be important for employers to make salary and personal rights arrangements in order to keep their key personnel working in critical positions.

In summary, the new early retirement law, which is likely to affect approximately 5 million employees, is likely to impose a significant workload on Human Resources units and Finance units of workplaces in the year of 2023. While the workload of the Human Resources units such as dismissal, severance pay, legal calculations and payment will increase, it will be necessary to take new steps in terms of talent planning.

There is a three- to four-month window of opportunity to back up employees at critical points, to find and employ talents to replace those who will get retired, and to control personnel loss by conducting job interviews earlier on. Human Resources units that do not use this window of opportunity will be under a very heavy workload in the year 2023.

Bünyamin Esen

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