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:
Australia: Vote due on means testing private health insurance rebate
EU: Pensions White Paper imminent
Ireland: Finance Bill 2012
Malaysia: Private retirement scheme update
Netherlands: Parliament approves retirement age hike
Spain: Labor market reform decree
UK: Automatic enrollment regulations published
US: 401(k) fee disclosure rules; Guidance and draft regs supporting annuities; Proposed FATCA regs
Hiring incentives in Finance Law 2012
Finance Law 2012, the 2012 Budget legislation, went into effect on 1 Jan 2012. It features an array of tax deductions for:
- Companies that hire long-term unemployed workers up to age 30
- E-companies that take on disabled workers
- Enterprises that subsidize training and education for workers up to age 35
Post-independence social welfare crunch
The fledgling Republic of South Sudan must now contend with the plight of pensioners who can no longer expect to receive their benefits from the Sudan National Pension Fund. The Ministry of Labour is now reviewing benefit claims and creating an emergency fund for those whose cases it can validate. Draft legislation establishing the nation’s own pension fund is now under examination in the Ministry of Justice. Meanwhile, the minister of social welfare has affirmed his commitment to providing universal health coverage via the Southern Sudan Health Insurance Fund (SSHIF) that was mandated by the South Sudan Council of Ministers a few years before the nation’s independence was formally declared last year.
Vote due on means testing private health insurance rebate; Various
ABC, AFR, Tax Analysts
The administration is now confident that it has adequate support for Fairer Private Health Insurance Incentives Bill 2011, legislation on means testing the private health insurance rebate, and a vote is expected this week. Rebate reductions would start next year for individuals earning over $83,000 and families earning over $166,000. The rebate would be eliminated for individuals earning over $129,000 and couples earning at least $258,000. The bill would also raise the Medicare levy surcharge for higher income people without private hospital insurance. The health minister has noted that the opposition is reluctant to commit to rescinding this legislation once it passes.
In other news:
- The prime minister hailed a recent Fair Work Australia (FWA) decision on equal pay for workers in the social and community sector. It is regarded as an important precedent confirming the FWA’s commitment to equal remuneration for men and women.
- The Green Party revealed that it has held discussions with the government on its proposal to alter the tax regime for superannuation contributions. Its plan to curb tax concessions for high-income earners will be submitted to the administration’s new Superannuation Roundtable, which is scheduled to produce a package of super reform proposals by December 2012.
- The administration has created the post of Age Discrimination Commissioner. The commissioner will soon hold an inquiry on Commonwealth legislation and policies that support age discrimination in the workplace.
Minimum wage hikes
Xinhua, AAStocks Financial News
The Ministry of Human Resources and Social Security has issued a five-year plan that features minimum wage increases of at least 13% per year. The aim is to have the minimum wage for most regions reach at least 40% of the average wage for urban workers within five years.
2012 Budget features MPF tax sweetener
Tax Analysts, IBFD, ET Net
Hong Kong’s 2012-13 Budget includes a measure that would raise the maximum annual tax deduction for statutory contributions to the Mandatory Provident Fund from HK$12,000 to HK$15,000 (US$1,935). This is particularly welcome as a follow-up to the increase in the maximum pensionable income level under the Mandatory Provident Fund Schemes Ordinance — set to rise from HK$20,000 per month to HK$25,000, starting 1 Jun 2012. Other provisions would raise the annual deduction for elderly residential care expenses and increase funding for small enterprises employing people with disabilities.
Health Insurance Forum; Health insurance guidelines for people with HIV
DNA, Economic Times, Business Line
The Insurance Regulatory and Development Authority (IRDA) has established the Health Insurance Forum, a tripartite body that would both consult on future health insurance regulation and promote health insurance. Another new IRDA initiative is an exposure draft on underwriting policy on health insurance coverage for people with HIV and those health providers who are exposed to the condition. Feedback is welcome through 2 Mar 2012 and the underwriting policy is set to become mandatory on 1 Oct 2012.
Pension reform funding report
Jiji Press, Kyodo News
The ruling Democratic Party of Japan (DPJ) has now released the figures behind its proposal for a social security reform funded by doubling the consumption tax to 10% (IH 02/01/12). Projections to 2075 show the consumption tax rising to 17.1% and the need to reduce benefits for middle- and upper-income pensioners. This is expected to deepen the intransigence of opposition parties that have so far rebuffed invitations to debate the reform.
Working hours curbed; Re-employment terms for foreign workers eased
Korea Herald, Arirang, Koilaf
The tripartite Economic and Social Development Committee (ESDC) created a Committee on Reduction of Hours Worked last December and has since won government support for a proposal to reduce the number of sectors exempt from a 52-hour ceiling (40-hour week plus 12-hour overtime limit) on the workweek from 26 to 10. Paired with the Labour Ministry’s plan to count weekend work as overtime (IH 02/01/12), this would set a 12-hour cap on weekend work.
Also, the Ministry of Employment and Labour (MOEL) announced that it will revise Act on Foreign Workers’ Employment, etc. to halve the minimum period between work permits for a foreign worker to three months. Those who concluded the legal work permit period of four years and 10 months after 2 Jul 2012 would have to spend the three-month waits in their home countries before applying for another 58-month permit.
Private retirement scheme update
Asian Investor, Malaysia Finance
The Securities Commission has taken some concrete steps toward introduction of its private retirement scheme (PRS) (IH 10/12/11). It recently concluded a tender for PRS providers. It is now drafting guidelines on the responsibilities of scheme trustees. Individuals would have tax relief on contributions up to RM3,000 (US$967) per year and employers would have tax deductions on contributions up to 19% of a worker’s annual salary.
Retirement age hike urged
NZ Herald, Hawke’s Bay Today
The Treasury has now published the briefing paper it prepared for the incoming minister of finance last fall. The paper makes a strong case for raising the retirement age before the “fiscal challenge” of the baby boomer retirement wave hits. While this is likely to prompt debate, the prime minister has been adamant that retirement age will not rise while he is in office (IH 12/15/10).
New income tax regulations
IBFD, Tax Analysts
Late last month, the government gazetted Executive Regulations to the new Income Tax Law, which will apply to all fiscal years ending after 1 Jan 2012. Worker contributions to pension funds are now tax-deductible. Their contributions to foreign pension funds are also generally tax-deductible, provided adequate documentation is submitted to tax authorities. In addition, the regulations detail the terms under which the remuneration of directors and company partners are tax-deductible.
CPF contribution slated to rise for older workers
Business Times, Today, Straits Times
A government open forum site has posted a report on a pre-budget meeting between the prime minister and social partners at which the PM asserted that employer Central Provident Fund contributions for older workers (IH 07/27/11) will have to gradually rise. Under present rules, employer CPF contributions drop from 16% to 12% when an employee reaches age 50, then 9% at 55 and 6.5% at 60. While this is an incentive for retaining senior staff, it undermines the goal of adequate retirement income.
Nationality verification program extension
The nationality verification program (IH 03/03/10) has had its deadline pushed back once again from 28 Feb to 1 Jun 2012. Logistical problems remain, particularly for Myanmar and Cambodian workers who fear deportation if they visit a border region registration station.
Guernsey QROP legislation; Guernsey Benefits in kind guidance
The Telegraph, Law and Tax, Tax Analysts
Guernsey’s Treasury and Resources Department has drafted the legislative blueprint Amendments to Income Tax Legislation relating to pension schemes – establishment of new category of scheme in response to provisions of UK Finance Bill 2012 (IH 12/14/11, UK) that would endanger Guernsey’s status as a major host for the UK’s QROPS (Qualified Recognised Overseas Pension Schemes). The new QROPS standards are expected to come into effect on 6 Apr 2012. Guernsey Finance has asked the UK’s HM Revenue and Customs to revise the QROPS provisions of Finance Bill 2012 to rid it of unintended consequences for legitimate QROPS. Another recent Treasury and Resources Department posting, Benefits in Kind Guide 2011, provides updated guidance on the valuation of benefits in kind for tax purposes.
Income Tax Act amendments
A major set of amendments (Estonian only) to the Income Tax Act came into effect on 1 Jan 2012. Among the highlights:
- Employer payment of expenses for education directly related to one’s job will no longer be subject to fringe benefits tax.
- Employers may now make tax-free contributions to third-pillar pension schemes (IH 07/20/11), subject to a total employer/employee contribution limit of the lesser of €6,000 or 15% of annual gross income. This new tax regime is extended to pension funds based outside of the European Economic Area (EEA).
- It has been made clear that there is no tax penalty for transferring to another pension scheme.
Pensions White Paper imminent; Proposed revisions to professional qualifications law; FTT debate heats up; Breakthrough on derivatives legislation
The European Commission has again deferred the planned 14 Feb release of its long-delayed white paper on pension reform (IH 12/01/11), which is now tentatively slated to appear here tomorrow. This set of pension reform proposals reflecting responses to the 2010 pensions green paper (IH 07/08/10) has been leaked at a few stages, most recently last week. This version reportedly features:
- Discussion of member state pension reform legislation that the EC can urge but not mandate
- “Career management” for those strenuous jobs that now warrant early retirement
- Best practices for occupational pension schemes
- A pilot project on cross-border pension tracking to ensure that mobile workers don’t miss out on benefits
The European Insurance and Occupational Pensions Authority (EIOPA) draft revision of the Institutions for Occupational Retirement Provision (IORP) Directive is also due “in the coming days.”
Also, revisions to the European Union (EU) law on the mutual recognition of professional qualifications (IH 12/01/11) that enables people to work in their professions in other member states have been proposed by the European Commission. The proposal aims to: improve labor mobility by requiring member states to justify their regulation of professions (there are currently 800 regulated professions across the EU); establish a single contact point in each country to ease access to information and services; introduce a "European professional card" for professions adopting the card scheme; update training requirements for certain professions; set up an alert mechanism about health professionals prohibited from practicing their profession by a public authority or court; and introduce common training frameworks and tests to enable recognition of new professions not covered by the 2005 law.
The European Commission’s proposed financial transaction tax (FTT)(IH 01/19/12) fails to distinguish between normal and riskier financial behavior and could set back Dutch banks, pension funds, and insurers around €4 billion a year, the Netherlands pensions regulator (DNB) stated. Meanwhile, the European Federation for Retirement Provision has called for the dismissal of the FTT proposal, and, if not dismissed that pension funds, institutions for occupational provision (IORPs) and institutions managing assets on their behalf should to be exempted. Separately, nine EU member states, including France and Germany, have recently called for speedy adoption of the FTT, which requires the unanimous agreement of all 27 member states. First proposed in September 2011 with the objective of reducing member states’ contributions to the EU budget, the FTT would apply to a wide range of financial transactions, imposing a tax of 0.1% on stock and bond trades and of 0.01% on derivatives’ trades.
Meanwhile, Parliament and the European Council have reached an agreement on legislation to regulate the derivatives market. An FAQ mentions that the waiver of central counterparty (CCP) obligations for pension funds is only temporary. The pension industry has been asked to devise the “appropriate technical solutions” for working within the CCP framework without incurring “disproportionate costs.” The upcoming Parliament and European Council votes are depicted as formalities. The legislation will be reviewed for possible revision three years after entry into force.
FTT, social VAT bill clears Cabinet
BNA DER, IBFD, Tax Analysts
Amending Finance Law for 2012 (French only) was adopted in the Council of Ministers and is being submitted to Parliament. It features both the unilateral adoption of a financial transaction tax (FTT, see EU paragraph 3) and a “social value-added tax” trimming a portion of the social welfare tax in exchange for raising the VAT from 19.6% to 21.2% (IH 02/01/12).
Parliament approves austerity package
Reuters, Kathimerini, Washington Post
Parliament has passed a harsh but unavoidable package of austerity measures in order to secure its next tranche of bailout funds. A proposal to eliminate the minimum wage was modified to a 22% cut in the final draft. The 13th and 14th month salary were preserved for the private sector in this round, but their future looks precarious. The final version of the legislation reportedly includes cuts in both state pensions and state-guaranteed private-sector pensions for higher income retirees as well as job market reforms, but details are not yet available.
Finance Bill 2012
Tax Analysts, Irish Examiner, IBFD
The Finance Ministry has published Finance Bill 2012, which is now before Parliament with an Explanatory Memorandum. It features some of the measures introduced in the 2012 Budget (IH 12/07/11). Among the highlights:
- A Special Assignee Relief Programme (SARP) would grant key employees from abroad on temporary assignment a 30% tax break on salary between €75,000 and €500,000. The program would initially be offered for a three-year trial period, but the tax relief for qualified individuals would last for up to five years.
- The exemption threshold for the Universal Social Charge would rise from €4,004 to €10,036.
- The transitional age-related income tax credit (IH 01/11/12) is included as is the complementary rise in the health insurance levy for younger pensions.
- Approved pension funds and Personal Retirement Savings Accounts (PRSAs) would be spared the Life Assurance Exit Tax.
- The terms of imputed distribution for PRSAs and Approved Retirement Funds (ARF) would be harmonized.
EEA statutory benefits recognized; Bill would ban language requirements
IBFD, Latvians Online, Baltic Daily
Parliament has adopted a set of Income Tax Law amendments that – effective 1 Jan 2012 – grant tax exemptions to benefits paid by another EEA (European Economic Area) country. It also protects workers from double taxation on foreign employment income generated in another EEA state.
Another bill – now in the second reading stage in Parliament – would bar employees from requiring knowledge of a foreign language when that language is not essential to carrying out one’s duties. This administration-sponsored measure comes in response to the common practice of making Russian-language skills a prerequisite for a wide range of positions.
Social security contribution cuts tweaked
IBFD, Invest Macedonia
A gradual reduction in social security contributions (IH 01/26/11) was de-accelerated by a measure gazetted at the end of last year. The premium for pension and disability insurance will stay 18% for 2012 and 2013. It will fall to 17.6% is 2014 and 17.5% in 2015. The 1.2% unemployment insurance contribution will stay 1.2% until 2015 when it drops to 1.1%. The health insurance levy will remain 7.3% for this period.
Parliament approves retirement age hike; Opposition parties to propose ban on bank, insurance bonuses
DutchNews.nl. Radio Netherlands Worldwide, IPE
The Dutch state retirement age will increase progressively to 66 in 2020 and to 67 by 2025, following parliamentary approval (Dutch only) of the government’s proposal. The law will offer some flexibility, enabling employees either to take early retirement, or to continue working beyond the retirement age. Employees will be allowed to retire up to two years early in exchange for a 6.5% reduction in benefits for each year of early retirement, while the reduction for low-earning employees will be capped at 1.5% for each year. Employees wishing to work beyond retirement age will be allowed to do so for up to five years in exchange for a 6.5% increase in benefits for each additional year worked.
Also, the opposition Labour and Socialist parties are pushing for a complete ban on bonuses in the banking and insurance sectors because they say variable pay provides the wrong kind of incentive. According to a Parliament member's posting (Dutch only) on the PvdA website, the parties are proposing legislation that would ban bonuses for all directors and employees in the financial sector and cap variable pay at 20% of fixed salary. Current law simply prohibits bonuses over 100% of annual salary for bank executives.
Minimum wage rise
Newsflash, Russia Profile
In advance of the 4 March elections, the ruling United Russia Party is pushing legislation through Parliament that would raise the minimum monthly wage by 41%. The 4,600 ruble (US$146) minimum would rise in three stages to reach 6,500 rubles by October. The measure reportedly does have the votes to pass.
Labor market reform decree; Exec pay capped in bailed out banks
Financial Times, Bloomberg, El Pais
Spain’s Council of Ministers approved an emergency Royal Decree Law, which came into effect immediately and introduced some dramatic labor reform measures:
- Reduction of unfair dismissal severance pay entitlement from 45 days per year of service up to 42 months to 33 days per year of service up to 24 months.
- Inclusion of termination due to company’s financial hardship in definition of fair dismissal. Under this category, severance pay is 20 days per year of service with a 12-month limit.
- Restoration of the 24-month cap on temporary contracts.
- Encouragement of company-level collective bargaining with companies in financial difficulty able to opt out of a sectoral agreement.
- Partial subsidies on social security contributions for firms hiring workers under age 30, or the long-term unemployed over age 45.
- Promotion of company-sponsored worker training programs.
- Ability of unemployed persons taking low-paying jobs to claim 25% of unemployment benefit as a salary supplement for up to a year.
The Labor Minister is meeting with social partners to share more details on this decree. Parliament must ratify the law to make it permanent.
PM promotes deferred retirement culture
The Local, Esmerk, AFP
The prime minister earned some headlines with his opinions on flexible retirement at a Northern Futures Forum discussion on improving the environment for an aging workforce. Noting that “the pensions scheme isn’t based on magic,” he suggested that hiring older workers would be more palatable to employers if a 55-year-old were more commonly planning on another 20 years in the workforce rather than already working on an exit strategy. His suggestions for supporting these goals include transitions into less taxing jobs for seniors and – possibly – student loans for people over age 55 considering a career change.
See also: Channel Islands
Automatic enrolment regulations published; PM backs longevity peg for retirement age, Various
The Telegraph, Money Marketing, IPE
On 1 February, the Department for Work and Pensions (DWP) published the final version of the auto-enrolment regulations it consulted on over summer 2011 (IH 07/27/11). The main areas covered in the regulations are:
- Waiting and re-enrolment periods, where the prescribed period to provide the notice is being increased from one week to one month;
- Elimination of the burdensome “Person A" Test, which would aggregate pensionable income for low-wage earners who sometimes work overtime to ensure that they are not accidentally found eligible for auto-enrolment.
- Certification of Defined Contribution (DC) schemes, which will now last for a period of 18 months rather than 12, with accompanying guidance, which provides more clarity over what should be treated as "basic pay"; and
- Bringing in offshore workers and certain other occupations not previously covered under the duties
The Government is still considering certain other aspects of the auto-enrolment regime. These include:
- The outcome of the consultation on changes to the earnings trigger and qualifying earnings band;
- Excluding some cross-border workers from auto-enrolment; and
- Regulations confirming the revised staging dates for small employers, which were announced (IH 02/01/12) in January.
Incidentally, the Pensions Regulator (TPR) has just revised its step-by-step guidance on automatic enrolment duties to reflect recent regulatory changes. TPR anticipates the need for further updates soon.
Also, while attending the Northern Futures Forum discussion on seniors in the workplace, Prime Minister Cameron professed “love” for the Norwegian model of pegging the normal state pension age to life expectancy. His ardor extends to Norway’s flexible retirement approach, which affords some leeway in retirement age but rewards retirement deferral with a higher benefit. The administration has already proposed raising the state pension age to 67 by 2028 (IH 12/01/11).
In other news:
- Soon after it was heralded by the Business Secretary, a new independent body, the High Pay Centre, was launched to "monitor pay at the top of the income distribution and set out a road map towards better business and economic success".
- A recent Supreme Court ruling found that a UK resident employed by a UK company but posted overseas much of the time was entitled to bring an unfair dismissal case before a UK employment tribunal, even though the dismissal occurred in Libya.
- The UK's Upper Tribunal (Tax and Chancery Chamber) affirmed a lower court’s decision that partial remuneration via a discounted options scheme constituted tax avoidance and that the value of this payment should have the same tax treatment as bonus compensation.
Pension reform urgency contested; Ontario health reform plan
Edmonton Journal, National Post, Globe and Mail
The Parliamentary Budget Officer’s Federal Fiscal Sustainability and Elderly Benefits makes the case that the state pension is sustainable under existing terms, undercutting the prime minister’s recent claim that serious pension reform will be necessary (IH 02/01/12). The finance minister has asserted that there will be pension reform measures in the federal budget next month but said that the anticipated Old Age Security (OAS) system reforms would not start to phase in until 2020 and would not affect Canadians now age 57 and up. Finance Department officials have since cautioned that there has not been any final decision on the timetable for reforms.
Also, Ontario’s health minister has outlined significant reforms in the healthcare system. Priorities include:
- Emphasis on preventive care
- Greater access to primary care physicians and nurse practitioners to reduce over-reliance on hospitals
- Assessment of which medical procedures, such as minor surgery are appropriate for clinics rather than hospitals
- Investment in home health care
401(k) fee disclosure rules, Guidance and draft regs supporting annuities; Proposed FATCA regs; 2013 Budget
Tax Analysts, Mondaq, Reuters
The Department of Labor has issued final regulations on 401(k) fee disclosure (IH 01/11/12) and the compliance deadline for provider disclosure to fiduciaries is pushed back to 1 July 2012. Notices to plan participants are also deferred by three months. The rule on requiring plan providers to issue a summary document detailing all fees for employers is postponed with a consultation on draft rules slated for this June. The 401(k) fee disclosure regulations were announced in a flurry of press releases teaming them with a set of Internal Revenue Service (IRS) draft regulations and guidance that share the theme of boosting retirement security with greater access to lifetime income options. The IRS releases promote a more hospitable environment for annuities. Subscribers and Mercer colleagues may access a GRIST with details on these releases.
Also, the IRS has opened a consultation on proposed regulations for implementation of the Foreign Account Tax Compliance Act (FATCA) (IH 02/01/12). There are two pleasant surprises. One is a joint statement on undertaking an intergovernmental approach to FATCA compliance with several other nations. The other is the amount of text devoted to explanations of exempting non-US retirement plans that are “certified deemed compliant.” While this level of responsiveness is heartening, some analysts still have concerns about significant gaps in the exemptions. Comments are welcome through 30 Apr 2012.
Meanwhile, the 2013 Federal Budget offers a few notable provisions:
- People not otherwise covered by an occupational pension would be automatically enrolled in individual retirement accounts (IRAs).
- There are provisions on tax disincentives for outsourcing jobs and incentives for insourcing jobs (IH 02/01/12).
- The Pension Benefit Guaranty Corporation (PBGC) is planning on a premium hike.
- The wage base for the unemployment tax is set to rise in 2015.
Minimum wage hike
EIU, Business Week
The president’s “dignified salary” policy is being furthered by a 10.6% minimum wage increase, twice the rate of inflation. This move lifts the base salary to US$292 per month, US$365 if statutory bonuses are factored in.