This weekly compilation of stories from wire services, newspapers and other sources is intended to keep Mercer employees and registered visitors to mercer.com informed of benefits, compensation and HR developments around the world. Facts have not been independently verified, and opinions expressed are those of the editor. Readers are invited to clarify, correct or expand on these items.
Top stories in this issue:
India: Clarification on pension guarantee issued
Ireland: Temporary agency worker bill submitted
Netherlands: Tax Plan 2012 gazetted
Switzerland: Consultation opens on second pillar report
UK: Major executive pay legislation on horizon
US: Insourcing plan outlined
TUFEA (Trade Union Federation of East Africa), comprising union federations of 13 East African nations, issued a set of resolutions at the conclusion of its meeting earlier this month. All members will pursue a tripartite consultation model, reinforce the links between worker rights and sustainable development and lobby their governments on corporate social responsibility standards.
Retirement age hike
AFP, MTM, Abidjan.net
The Cabinet has determined that a severe deficit in the National Social Insurance (CNPS) warrants a drastic response. The retirement age will see a rapid rise from 55 to 60 (life expectancy is 54). The 8% CNPS contribution will rise to 12% this year, then 14% in 2013.
Vanguard, the Nation
The head of the National Pension Commission (Pencom) outlined Pencom’s mission for the coming months at a recent workshop:
- The multifund investment menu model will be developed for the Retirement Savings Account (RSA) by July 2012.
- Also by mid-year, pension fund administrators (PFA) will face new disclosure and transparency requirements.
- Pencom aims to trigger a consolidation in the PFA industry by raising the capital requirement from N150 million to N1 billion (US$6,178,560).
Scope of FWA protection for independent contractors
In light of the administration’s commitment to extend Fair Work Act (FWA) protection to often-exploited contract workers in the textile, clothing and footwear (TCF) industry via the Fair Work Amendment (Textile, Clothing and Footwear Industry) Bill 2011, the business sector has been lobbying against the expected extension of FWA to independent contractors in many other sectors, either by amending the bill or including measures in the Fair Work Act Review. The Workplace Relations Minister has now plainly stated that the “extraordinarily vulnerable workers” in TCF are a special case and “the Gillard government supports independent contracting [as] a legitimate form of engagement.”
Battle over fixed-term contract limits
Phnom Pen Post
In July 2003, the Arbitration Council ruled that the Labour Law set a two-year ceiling on short-term contracts. The Labour Ministry maintains that the ruling misinterprets the law so it has not enforced it. Meanwhile, ministry-drafted legislation that would expressly allow indefinite renewals of short-term contracts has not been able to get through the National Assembly (IH 05/13/09). The Cambodian Labour Confederation (CLC) is lobbying the government to honor the Arbitration Court ruling and the Garment Manufacturers Association of Cambodia (GMAC) expects to ultimately settle the dispute in court.
Update on foreign worker social security coverage
SCMP, IFA, Reuters
The local production of the implementing regulations for subjecting non-Chinese workers to a social security levy (IH 10/26/11) has been very slow in key municipalities. Only Tianjin and Suzhou have followed Beijing’s lead so far. An analyst described Beijing’s launch of the levy as “chaotic” and noted that high-profile cities like Shanghai, Guangzhou and Shenzhen “haven’t done anything yet.” Shanghai, with a disproportionately high level of foreign investment, is widely perceived as stalling to placate its multinationals. One press source speculated that the cities are still lobbying the central government to drop this tax.
Clarification on pension guarantee
Business Line, Business Standard, Economic Times
The Insurance Regulatory and Development Authority’s (IRDA) new guidelines on pension products (IH 11/16/11) left many insurers confused about the status of their own pension products, so IRDA was compelled to issue Clarifications on Guidelines for Pension Products. The confusion had centered on the replacement of a 4.5% guaranteed rate of return with formal disclosure at time of sale of some guaranteed rate of return applicable on death, surrender or vesting. The IRDA has now detailed the terms for a “non-zero” assured return in each scenario. Pension providers had to reapply for IRDA approval of their products after the guidelines were issued and products that do not qualify under the November guidelines had to be kept off the market after 1 January. No one made the cut-off and insurers have charged the IRDA with creating a pension vacuum, but the regulator countered that the overwhelming majority of applications were delivered in the final week of December.
BPJS status update; Tax residency guidance
Tempo, Tax Analysts
The Coordinating Minister for People’s Welfare has advised the press that the social security reform law (BPJS) (IH 11/16/11) cannot come into effect until eight regulations and a presidential decision have been published. The heads of the relevant ministries have been meeting to discuss the remaining details of BPJS establishment, which include development of health benefit packages and the conversion of government insurers into BPJS. There is a November 2012 deadline for completion of the regulations.
Meanwhile, the director general of taxation has issued Regulation PER-43/PJ/2011 (Indonesian only) to clarify some tax residency issues. A foreign worker domiciled in Indonesia for no more than 183 days in a 12-month period or an Indonesian posted abroad for over 183 days within 12 months will be exempt from Indonesian tax residency provided there is ample evidence of tax residency abroad.
Deferral for general strike over contract workers
Arutz Sheva, Jerusalem Post
When Labor federation Histradut staged a general strike over the employment conditions of contract workers, the National Labor Court issued an injunction, then ruled that the strike must be postponed until tripartite negotiations on contract worker rights have had another chance. Histadrut may re-apply for permission to strike if there has been no progress by 31 January.
Medical co-payments rise
The Health Ministry has announced increases in some still-modest copayments. The JD3 (US$3.81) charge for overnight hospital stays by people with private health insurance will rise by 40%. And the JD20 charge for a foreign worker’s medical testing will rise by 50%. Neither approaches covering the cost of the care provided.
Shorter work week mulled; Ruling on maternity leave credit
Yonhap, Hani, Korea Herald
In advance of April’s general elections, the ruling Grand National Party is contemplating a commitment to working hour reduction, a theme recently embraced by the Korean Labour Foundation. Possible approaches include flexible work hours and a longer paid maternity leave. Also, the Ministry of Government Legislation recently ruled that a woman who held a professional position for six years would not qualify for a job posting’s six-year minimum experience requirement because she had spent six months of it on maternity leave. Critics – including the Minister of Gender Equality – have condemned the decision as a violation of the Sexual Equality Employment Act.
SSS contribution hike retry; Hearing scheduled for excess contribution tax
Business World, Manila Standard, Philippine Star
The Social Security System (SSS) board has given unanimous support to an attempt to lobby the president on a rate hike plan that was shelved last summer (IH 07/27/11). To accommodate a 10% rise in benefits, the social security contribution would rise from 10.4% to 11% and the P15,000 salary credit ceiling would jump to P20,000 (US$453.10). The board aims to introduce the increases by mid-year.
Also, the House Ways and Means Committee will hold a hearing this week on the Bureau of Internal Revenue’s (BIR) controversial circular on taxation of excess contributions to statutory benefit plans (IH 12/14/11). The guidance is condemned as anti-poor because a convenient savings vehicle for low-income people was sacrificed in a rash response to insurance companies marketing extra contributions as a loophole for the well-off. Moreover, the Tax Code still expressly exempts both mandatory and voluntary SSS contributions.
Workers' compensation coverage for migrant workers; Deportation fund delayed again
The Thai government’s ongoing initiative to protect the human rights of migrant workers has added another strategy. Coverage under the Social Security Office’s Workmen’s Compensation Fund has not been enforceable so last year the Labour Ministry introduced a requirement that employers purchase a 500-baht (US$15) workers' compensation insurance policy for each new foreign hire. That mandate was widely ignored, so now the insurance policy purchase is bundled with the process for obtaining a work permit. The program has huge loopholes as the insurance policies need to be renewed after a year and many migrant workers are undocumented.
Meanwhile, a repatriation fund (IH 12/02/10), also known as the alien worker deportation fund, has had a few delays since its 1 Jan 2011 target launch date and the Labour Ministry will soon announce a one-year reprieve on a debut that had been pushed back to 1 Mar 2012. The fund would require employers to deduct a security deposit from the salary of each foreign worker to cover the cost of deportation. The sum would vary by country, ranging from 2,100-2,400 baht for countries that supply the most migrants. Workers who complete their term of employment without getting themselves deported would be reimbursed the security deposit.
Liability for foreign internet access
Irish Times, GLM
Law No. 317-3 implements a February 2010 Decree on Improvements to the Usage of the National Segment of the Internet. Citizens may no longer visit foreign websites or those on a secret government blacklist. Any enterprise that provides Internet access to customers or employees is accountable for any illegal surfing conducted on its computers unless it reports the incident to the authorities. The law took effect on 6 Jan 2012.
Jersey civil partnership law
The new Civil Partnership (Jersey) Law was published on 10 Jan 2012. It amends income tax, social security and employment laws to give same-sex civil partners the same legal rights as married couples.
Health contribution decreases
1 Jan 2012 brought a 1% drop in the 8% national health contribution (sundhedsbidrag). This is part of a gradual tax reform (Danish only) that will phase out the levy at a rate of 1% per year while the income tax rate has complementary annual rises.
FTT prospects; Various
EIS, Euractiv, IPE
Despite strong backing, the financial transaction tax (FTT, IH 01/11/12) is starting to look like less of a sure thing. The Danish economy minister, who chairs the Ecofin group of member state finance ministers during Denmark’s EU presidency, is among those issuing dire warnings of lost jobs and GDP under the FTT. UK's prime minister has promised a veto if the FTT is adopted for the EU but not enacted globally and Germany’s chancellor does not have her ruling coalition’s support for the EU going the FTT route alone. The president of France plans to lead the EU by example and will issue details of a proposal for a national FTT by the end of this month.
In other news:
- After a few false starts, the EU white paper on the future of pensions is due for publication next month. It will reflect feedback on the consultation over the 2010 green paper (IH 07/08/10). The main themes will be a larger role for supplemental pensions and a more sustainable ratio of working years to retirement years.
- Social partners have been advised that if they fail to reconcile their differences over amendments to the Working Time Directive before they meet with the European Commission on 1 Sep 2012, the commission will release its own draft amendments.
- The agenda for the Danish Presidency offers nothing particularly startling. Free movement of EU workers, flexicurity, occupational safety and “flexible systems” for legal migration are among its priorities.
See also: EU, 1st paragraph
2012 Finance Act, 2012 Social Security Finance Act
Tax Analysts, Avocats.fr
The 2012 Finance Act (French only) was published in the 29 Dec 2011 Official Journal. It introduces a 21% tax rate on annuities above €240,000. The 2012 Social Security Finance Law (IH 11/16/11) was also published in the 22 Dec 2011 Official Journal, and analysts have flagged another important provision. From 2012, the amount of severance pay exempt from social contributions will drop to double the annual social security ceiling (€72,744), from three times the annual social security ceiling in 2011 (€109,116). For this year, some transitional rules apply to certain circumstances.
Ruling on factoring temporary workers into works council thresholds
Germany’s Federal Labour Court recently held that temporary agency workers who have worked at a company for more than three months should be included when determining employee threshold numbers for consulting work councils in the event of operational changes affecting employees. In the case, 1 AZR 335/10 (German only), a company had 20 employees, but the plaintiffs successfully argued that the single temporary agency worker who would bring the staff to the 21-employee threshold should be part of the headcount. The ruling does not affect the status of management and independent contractors who are expressly left out of the tally in the Works Constitution Act.
Second-pillar strife deepens
BBJ, MIT, IPE
The Pension Protection Commissioner has delivered the finding of an investigation into alleged financial irregularities in the embattled second-pillar pension system (IH 12/21/11). She concluded that “fraudulent practices” and risky investments stunted retirement income growth for participants. Under a deeply controversial dilution of judicial powers (IH 01/05/12), second-pillar backers have had to pursue justice in the European Court of Human Rights (ECHR) rather than in Hungary's own Constitutional Court. The ECHR registrar has now had to ask the 8,000 Hungarians who’ve filed applications in this matter to consolidate under union representation.
Temporary agency worker bill
The Protection of Employees (Temporary Agency Work) Bill 2011 has been submitted to Ireland’s Parliament. Ireland had missed the 5 December deadline for transposition of the European Union’s Temporary Agency Workers Directive last month (IH 12/14/11), but the National Employment Rights Authority did publish both a notice confirming that imminent legislation would be effective from 5 December and an FAQ on the directive. Under the bill, the definition of salary for the purposes of ensuring comparable pay extends to overtime, shift work and weekend hours. Items excluded from the definition of employment conditions requiring comparable treatment include sick pay and pension scheme participation.
Retirement age hike planned
Baltic Course, LETA
The Welfare Ministry has outlined amendments to the Law on Pensions that would raise the retirement age to 65 by 2020, a bit faster than proposed last spring (IH 04/27/11). Retirement age would increase by three months per year in 2014 and 2015, then double to six months per year from 2016-19. The threshold for early retirement would rise at a similar pace to reach 63 in 2020. The ministry aims to get the measure through the Cabinet and Parliament by 1 Apr 2012.
Beer production an “essential service”
The IUF, an international federation of food workers, is tracking Lithuanian courts' determinations on whether members of the IUF-affiliated Lithuanian Trade Union of Food Producers (LPMS) employed by a brewery have the right to strike. Two of the three district courts that have had a chance to weigh in on this case have pronounced beer production an essential service that may not legally be disrupted by a strike. The LPMS plans to appeal.
CCSS rate cuts
The National Social Security Organization (CCSS) has announced (French only) that the social contribution rates for 2012 will feature removal of the 0.8% crisis surcharge and a drop from 2.1% to 1% in the blue-collar worker mutual insurance contribution.
Maternity leave extension
Times of Malta, The Independent
Legal Notice 503 of 2011 (Maltese only) introduced a gradual extension of the statutory maternity leave period. Effective 1 Jan 2012, the 14-week maternity leave entitlement has grown to 16 weeks and those who were already on maternity leave at the start of this year qualify for the extension. From 1 Jan 2013, the minimum will be 18 weeks. The notice also protects pregnant workers and those who have given birth in the past 12 months from compulsory overtime.
Tax Plan 2012 gazetted; Vacation accrual during sick leave
Expatica, Eversheds, IBFD
Tax Plan 2012 (IH 09/28/11) was approved in Parliament and gazetted (Dutch only) at the end of last year. Press coverage has confirmed that the House of Representatives' adjustments to the 30% rule (IH 12/01/11) have survived intact. The change went into effect on 1 Jan 2012.
Also, legislation that came into effect on 1 Jan 2012 reflects recent European Court of Justice rulings on holiday rights during sick leave. A six-month maximum holiday entitlement for long periods of sick leave is now replaced by full entitlement. Two limitations are included to prevent excess accumulation of holiday entitlements. Leave rights earned during a period of sick leave will usually be forfeited if not taken in the first six months of the following year. If illness or workload makes that impossible, the carryover period may be extended to five years.
Consultation on ending tax break for pension equity holdings
WSJ, Esmerk, Business Week
The Finance Ministry has opened a consultation (Norwegian only) on its proposal to curb the tax exemption on shares held by defined benefit pension plans and some life insurance companies. Under the proposal, equity gains would be taxed at the corporate tax rate of 28%, but there would be a deduction allowed on losses from these shares. The industry has already signaled that customers would absorb the expense. The consultation closes on 2 Apr 2012, and the measure, if approved by Parliament, would apply retroactively to 1 Jan 2012.
Consultation on second pillar report
Aargauer Zeitung, IPE
The government has opened a consultation (German only) on its report on the future of second pillar pensions. The heart of the report is the mandatory periodic review of the conversion rate (IH 03/10/10), which is now 6.8% and due to drop to 6.4% by 2016. The report makes a case for reaching 6.4% or lower by 2015 for long-term solvency. Other recommendations include a retirement age hike, a more flexible method for calculating future liabilities and a “solidarity rescue fund” for financially troubled pensions. The overall tone – and the administration’s spin – is that the second pillar is “stable and solid” with a positive future, provided the recommended adjustments are made. Comments are welcome through 9 Mar 2012 and the Federal Council will then draft reform proposals for delivery to Parliament by the summer break.
Major executive pay legislation on horizon; Setback for Welfare Reform Bill
Financial Times, Sunday Times, Professional Pensions
Detailed proposals addressing executive pay are expected to be issued by the Business Secretary by the end of February. The heads of all three major parties have had virtually interchangeable sound bites on the need to contain excess executive pay (IH 12/14/11), so the legislative solutions previewed in recent weeks should have strong support. Among the measures mentioned so far:
- Top management remuneration disclosure would combine salary, incentive compensation and perks into a single figure.
- Shareholders would exercise a binding vote on executive pay.
- The ratio of chief executive pay to the average wage would be published as would the percentage of company profits paid out to executives.
- Performance-related pay formulas would be simplified to make it easier to determine whether the linkage is valid.
A proposal to add worker representatives to remuneration boards has already been nixed, but the Labour Party’s shadow business secretary will continue to lobby for the inclusion of employees and women on pay committees. Legislation will coincide with the Queen’s Speech this spring.
Also, three key elements of the divisive Welfare Reform Bill 2010-11 were defeated in the House of Lords last week. The measure had proposed to:
- Means-test employment and support allowances (ESA) for most cancer patients after one year
- Set a 12-month cap on ESA for claimants whose disability is diagnosed as temporary
- End the ESA for disabled young people who have never had occasion to make National Insurance contributions.
The administration maintains that these measures are essential and will push to have them restored in the House of Commons.
New occupational pension scheme
Amigoe, Island Financial
At the start of this year, Parliament adopted legislation establishing a new mandatory occupational pension scheme (LAP). Among the prominent features:
- The normal retirement age is 60, but one may continue working and contributing to the pension until age 65.
- Employers will pay at least 50% of a set premium, but employees are allowed to make additional contributions.
- The definition of pensionable salary includes variable pay.
- Benefits are portable but may not be withdrawn before retirement.
- Existing company pensions will be grandfathered provided they meet the minimum LAP requirements.
- Pension insurers must be fully transparent on administrative charges.
The press has hinted but not yet confirmed that 1 Jan 2012 is the effective date.
Quebec pension developments
Benefits and Pension News, Mondaq, Communiqué
There has been a spate of notable developments for occupational pensions and the Quebec Pension Plan (QPP):
- The Regie des rentes has opened a consultation (Gazette Officielle, fee-based access) on draft regulations implementing the two-year extension (French only) of temporary funding relief for private-sector defined benefit plans (IH 12/07/11). The new closing date would be 31 Dec 2013. Submissions are welcome through 11 Feb 2012.
- The Quebec National Assembly has approved Bill #39 (French only). This set of QPP amendments is most notable for a measure that will – from 1 Jan 2014 – promote phased retirement by making it easier for workers who reach age 60 to maintain their full-time jobs and start making QPP withdrawals.
- The 1 Jan 2012 changes (French only) for the QPP include the first contribution hike since 2003. The plan premium – split evenly between employee and employer – has risen from 9.9% to 10.05%.
- The committee on the future of complementary pension plans was convened (French only) last month and will deliver its findings at the end of this year.
Consultation on work permit extension; SEZ to be exempt from work permits
Tax Analysts, Cayman News Service, Cayman Analyst
A term limit review committee has just closed a public consultation on whether term limits on work permits should be relaxed. Responses have so far been mixed with a majority favoring removal or extension of these limits. Whatever the outcome of the consultation, a new Special Economic Zone (SEZ) began accepting companies this month. Along with a variety of tax breaks, the SEZ boasts an exemption from work permit requirements.
Guidance on spinoff deadline corrected
The US Internal Revenue Service (IRS) has issued a corrected version of Notice 2012-6, which extends the deadline for transferring Puerto Rican residents from qualified US retirement plans to qualified Puerto Rican retirement plans. As outlined in a recent GRIST (accessible to subscribers and Mercer colleagues), the corrected version protects transferred workers from double taxation and explains how the switch is treated for purposes of nondiscrimination testing.
Insourcing plan outlined; Green card reforms
Washington Post, NYT, Tax Analysts
The White House has previewed a set of job market reform measures branded as “insourcing,” a counterbalance to the outsourcing trend of recent decades. The measures would include ending tax incentives for companies that move jobs overseas and creating tax incentives for bringing jobs back to the US. Educational system reforms and new training programs would ensure that more Americans have marketable skills. Some of these measures could end up in the House and Senate reconciliation of payroll tax cut bills (IH 01/05/12) that gets underway this week.
Also, some major reforms to the green card system have appeared on the horizon. Fairness for High-Skilled Immigrants Act, which would end the green card’s country-based quota system, quickly passed in the House and is being stalled in the Senate for more scrutiny. It is designed to – on balance – reduce waiting time for applicants, but would result in longer waits for some. In addition, Citizenship and Immigration Services aims to correct some anomalies in immigration law to streamline green card access for immigrant spouses of American citizens.
Social security developments; Anti-smoking law
OHS, BNA DRE, Global Employment Law
The Tax Department has fought – and lost – a string of court battles over whether bonuses are subject to social security premiums. Arguments have centered on whether a 1991 measure excluding performance bonuses from pensionable salary is explicit enough. Tax authorities threw in the towel last week with a statement affirming that when bonuses are “not paid habitually there can be no social security contribution assessment.”
Also, 15 years after passage of a law that limited smoking in enclosed, collectively used spaces to designated areas with adequate ventilation, Brazil amended (Portuguese only) the law to fully ban smoking in all shared enclosed spaces. The Pan-American Health Organization (PAHO) noted that Brazil is the largest country so far to take this step.
AFP auto-enrolment for independent contractors
BNamericas, Chile Forum, Social Security Bulletin
New regulations (Spanish only) that auto-enroll all independent workers into the private pension (AFP) system took effect on 1 Jan 2012. Workers may opt out any time before 1 Jan 2015 when participation will become mandatory for all. AFP contributions will be based on 40% of a worker's income this year, then rise to 70% in 2013 and 100% in 2014. The contributions will also afford workers' compensation coverage and eligibility for disability pensions. Independent worker contributions to the public health system will become mandatory in 2018.
Private pension reform timetable
A technical commission is slated to complete its draft legislation on AFP private pension plan reform (IH 10/05/11) by mid-March and Congress is expected to debate it in April. The bill will propose revamping the menu of financial instruments available to AFPs. It will call for a centralized body handling financial transactions for the private pension system (SPP) in order to reduce costs.
Investor guidelines on climate change
Environmental Finance, IPE, IPE
Investor Network on Climate Risk (INCR), Institutional Investors Group on Climate Change (IIGCC) and Investors Group on Climate Change (IGCC), comprising many of the world’s largest institutional investors, have collaborated on guidelines for corporate responses to climate change. The investor statement outlines such policy changes as incorporating climate change as a factor in risk management and disclosing both carbon emission levels and programs for reducing them to shareholders. Those interested in this topic may also want to review Mercer’s latest climate change report, Through the Looking Glass: How Investors are Applying the Results of the Climate Change Scenarios Study.