Automatic Individual Retirement Account may lead to income cut

Published 13.06.2016 23:16

Ergün Atalay, the president of the Confederation of Turkish Labor Unions (Türk-İş), said a compulsory deduction from employee salaries as part of automatic involvement in the Individual Retirement Account (IRA) will lead to a decline in employee's real income and the disruption of industrial peace.

The government offered a state subsidy of 25 percent to IRA participants in order to increase the low savings ratio and curb the current account deficit in 2013. It is now set to take deductions from employee salaries for a certain period of time in order to ensure newly-employed individuals' automatic involvement in the IRA, with the objective of increasing savings ratio.

According to the Medium Term Program (MTP), there is a set goal of having the ratio of savings to Gross Domestic Product (GDP) at 14.6 percent at the end of 2015 and 16.1 percent at the end of 2016. This ratio, which hovered around 24 percent earlier in the 2000s, dropped to around 13 percent before the state provided subsidies for IRA participants.

Atalay's written statement said:"Although the minimum monthly living costs of an individual is set to be TL 1,600 ($547) according to official state data, net monthly minimum wage is determined to be TL 1,300. In addition to receiving TL 300 less every month, cutting TL 100 more compulsorily as part of the IRA means consigning employees to starvation."

Deputy Prime Minister Mehmet Şimşek previously said that studies on automatic involvement in the IRA would be offered to Parliament after they were completed.

Atalay stated that insistence on automatic participation in the scheme would lead to unfavorable consequences, such as a decline in employee's real income and the disruption of industrial peace, adding, "This practice will harm the labor market."

He also noted that it would not be rational for Turkey to increase savings in this way when the real minimum wage is on the lowest tier of $10,000 a year among Organization for Economic Cooperation and Development (OECD) countries, adding that ways to increase disposable income must be discussed as a way out instead.

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