The Article 29 of the Social Insurance and General Health Insurance Code No. 5510, which is the primary legislation of the Turkish Social Insurance Regime, entitled “Calculation of Old Age Pension” explains the calculation method of old age pensions (retirement pensions) in Türkiye: “The old age pension of the insured within the scope of subparagraphs (a) and (b) of the first paragraph of the Article 4 and those who started working as insured for the first time after the date of entry into force of this law according to subparagraph (c) of the same paragraph is the amount found by multiplying the average monthly earnings to be determined according to the following provisions and the monthly connection rate.
The average monthly earning is thirty times the average daily earnings calculated by dividing the total of the earnings found by updating the insured’s premium-based earnings for each year with the update coefficient realized every year for the years from the year the earnings belong to until the monthly request date by the total number of premium payment days excluding the nominal service period and the actual service period increase.
The monthly connection rate is applied as 2% for every 360 days of the total number of premium payment days of the insured subject to disability, old age and death insurance. Periods less than 360 days are proportionally taken into account in this calculation. However, the monthly connection rate cannot exceed 90%.
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If the starting date of the monthly calculated as above falls within the first six months of the year, it is increased by the increase rate applied to income and pensions for the January payment period according to the second paragraph of the Article 55, and if it falls within the second six months of the year, it is increased by the increase rates applied to income and pensions first for the January payment period and then for the July payment period, and the insured’s monthly starting date is calculated.”
The most important factor in calculating the old age pension and updating past earnings is the Update Coefficient.
The Update Coefficient to be used to update past earnings in the calculation of average monthly earnings is regulated in the Article 3 of the Code No. 5510.
The update coefficient to be used in the monthly calculation is considered as the value found by adding the whole number (1) to the sum of 100% of the change rate in the latest basic year consumer price general index (CPI) announced by Turkish Statistical Institute (TurkStat) according to December of each year and 30% of the gross domestic product growth rate at fixed prices.
In addition, the calculated/paid monthly payments are also increased by the CPI rate of the previous six months in the January/July periods.
Due to this pension calculation method and the pension increase method, the year in which the old-age pension is requested becomes an important factor determining the amount of the pension the retiree will be getting.
Since the monthly calculation method regulated in the Article 29 of Law No. 5510 and the Article 55 increase the monthly payments by the CPI change rate of the previous six months in the January and July periods, the year in which the old-age pension is requested plays a very important role in determining the amount of the pensions.
In this context, the premium bases of those who apply for retirement in the calendar year of 2024 (including 31.12.2024) will be updated with the update coefficient for the years 2008-2023 and then calculated monthly, and then this calculated monthly will be increased with the monthly increases of 2024/January and July. The old-age pension for 2024 will also be increased by the monthly increase in 2025/January.
The premium bases of those who apply for retirement in 2025 (between 01.01.2025-31.12.2025) will be updated with the update coefficient for the years 2008-2024 and then calculated monthly, and then this calculated monthly will be increased with the monthly increase of 2025/January.
Since the January-July 2024 pension increase (86.16%) will be higher than the 2024 update coefficient (42.55%) according to the expected inflation rate and growth rate estimates for the year 2024, the pension of those retiring in the calendar year of 2024 will be higher than those retiring in the calendar year of 2025 and subsequent years. Accordingly, the differences are being estimated as follows:
- If the inflation rate for 2024 will be finalised as 45%, the pension of those applying for retirement in the 2024/December period will be approximately 30-31% higher than those will be applying to pension in the 2025/January period.
- If the inflation rate for 2024 will be finalised as 42%, the pension of those applying for retirement in the 2024/December period will be 33-34% higher those will be applying to pension in the 2025/January period.
- If the inflation rate for 2024 will be finalised as 40%, this difference will be 35-36% higher those will be applying to pension in the 2025/January period.
- If the inflation rate will be finalised as 38%, it will be 37-38% higher those will be applying to pension in the 2025/January period.
It would not be wrong to say that the difference will decrease as inflation in 2024 will be finalised higher than expected.
Due to this high difference between the pension that those who apply for retirement in 2024 will receive and the pension that those who apply in 2025 will receive, it is recommended that all companies make personnel planning by taking into account that some employees may bring forward their retirement applications and leave business life by choosing to retire in 2024.
