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:
Belgium: Parental leave extension proposed
Canada: 2012 Federal Budget, Ontario 2012 Budget
EU: Communication on migrant social security
Japan: Cabinet approves consumption tax hike
Poland: Ruling coalition accord on pension reform
Replacement training requirement for work permits
The Ministry of Labor recently announced plans for stricter limits on work permits for foreign workers. The most dramatic and challenging change would require foreigners on work permits to pass along their expertise to local workers so employers would no longer have to import skills. Details are sketchy, but this would evidently oblige employers to manage the training programs.
New corporate income tax regulations
Corporate income tax regulations that came into force on 1 Mar 2012 cap the tax deduction on employer retirement scheme contributions paid abroad at 15%. Also, any allowances paid to board members will have to be confirmed as reasonable in a shareholder vote.
Independent trade unions threatened
A year after the government endorsed trade union freedoms (IH 3/23/11), the union federations are alerting the public to both a resurgence of the old government-affiliated Egyptian Trade Union Federation (ETUF) and the arrival in Parliament of legislation that would make it harder to maintain independent trade unions. The legislation would ban multiple trade unions in any given enterprise and authorize seizing the assets of any union that challenges the officially sanctioned company union at any time other than the quadrennial elections.
Proposal to loosen pension fund investment caps
The National Pension Commission (Pencom) concluded on 30 March a brief consultation on draft regulations that aim to establish “uniform rules and standards” for the investment of pension funds. Among the highlights:
- The limit on stock market investments would double to 50%.
- The multi-fund investment menu model would be adopted for the Retirement Savings Account.
- With the proper safeguards, infrastructure investment would be viable and could include the government floating an infrastructure bond.
- Pencom aims to make Nigeria a hub of Islamic finance by developing portfolios compliant with shariah law.
NHI pilot launched in South Africa
The Department of Health has presented details regarding implementation of -- and the 10 districts to participate in -- the first phase of South Africa’s National Health Insurance (NHI) pilot that began 1 Apr 2012. NHI is scheduled to be implemented gradually in three phases over a 14-year period with the first phase including: strengthening the health system, improving the service delivery platform, and implementing policy and legislative reform. The DOH presentation includes information on the progress on phase 1 deliverables of the Green Paper on NHI (IH 9/28/11), explains how the pilot districts were selected, and outlines which components of NHI the pilot districts will focus on. Although the program is currently funded by the government, the 2012 budget (IH 2/29/12) noted that funding options being considered include an employer payroll tax, a VAT increase and an income tax surcharge.
Togo’s 2012 Budget (French), enacted at the start of 2012, features a number of important tax law amendments. Deductions from taxable income include the amount withheld by an employer for a private pension or a compulsory pension up to 6% of pay, as well as employee contributions to social insurance and mandatory health insurance. A mandatory health insurance scheme was introduced for the public sector in 2011 and will eventually extend to the private sector, but there is no timetable for this.
Cabinet considers Supplementary Finance Law 2012
Supplementary Finance Law 2012, now before the Council of Ministers, would allow annual deductions on life insurance premiums up to TND10,000 (US$6,633.50). Proposed amendments to the Investment Incentives Code would offer five years of tax breaks when companies hire Tunisian nationals between 1 Jan 2012 and 31 Dec 2013:
- An additional 50% of gross salary up to TND3,000 would be deductible for the employer.
- Employer social security contributions would be waived.
- Salaries of new hires would be exempt from payroll taxes.
China issues rules on overseas share schemes
The State Administration of Foreign Exchange has clarified the rules on Chinese nationals participating in an overseas listed company’s incentive stock scheme. Circular No. 7 (Chinese only) details the registration process and disclosure requirements. The guidance covers a broader range of schemes and entities than its predecessor and went into effect immediately upon its 16 March release.
IRDA cautions life insurers over risk exposure
Live Mint, Business Standard, Economic Times, AIR
The Insurance Regulatory and Development Authority (IRDA) has written a letter to life insurance companies expressing its concern about increasingly complex life insurance products that set no ceiling on the maximum amount insured and transfer the risk to reinsurers. The IRDA cannot at present require an insurer to set a maximum coverage level, but it plans to draft comprehensive guidelines on the issue.
Cabinet approves consumption tax hike
Japan Times, AFP, Nikkei Report
The cabinet finally (Japanese) approved a controversial proposal to bolster social security funding by doubling the consumption tax to 10% by 2015 (IH 3/21/12). The agreement came only after language on further increases was scrapped and it may have dealt a fatal blow to the junior partner in the ruling coalition, endangering the coalition as well. The administration aims to get the bill through the Diet before the current session ends in June.
Draft Labour Code withdrawn
The draft Labour Code (IH 3/28/12) has been removed from the Cabinet’s agenda. The administration will appoint a working group including representatives of the Federation of Trade Unions to revise the unpopular code “article by article.” There was no mention of a deadline for completing the group's work.
Salary increase decree enacted
Daily Star, Executive Magazine, UHY
The salary increase agreement approved by the cabinet in January (IH 1/25/12) was the basis for Wage Hike Decree no. 2474, which was gazetted (Arabic only) on 26 Jan 2012 and went into effect on 1 Feb 2012. There has been much confusion among stakeholders and some allegations of low compliance. The labor minister is keen on enforcing the decree and the General Labor Confederation has volunteered to help. One often-garbled provision that will make a big difference for qualifying employers allows companies to offset any wage increase provided since 1 Jan 2010, provided the increase was linked to the cost of living and given to all workers or at least a broad segment of personnel.
Philhealth expansion bill advances
Business World, Manila Bulletin, Manila Times
The House of Representatives has approved on second reading HB 6048, a key plank in the expansion of Philhealth into a Universal Health Care system (IH 12/07/11). The bill would extend coverage to those who are not formally employed, including casual workers and contractors. Employers would be obliged to register those workers and deduct contributions from their pay.
Work permits for unskilled foreign workers extended
Asia One, Today, Totally Expat
The Ministry of Manpower has responded to business community concerns about work permit cuts by raising the maximum periods of employment from six years to 10 for a large share of the unskilled foreign worker population. Reduced Dependency Ratio Ceilings -- the percentage limits for foreign staff -- had been included in the 2012 Budget (IH 2/29/12). The new extension will apply to workers from Bangladesh, China, India, Myanmar, the Philippines, Sri Lanka and Thailand effective 1 Jul 2012. Workers from Malaysia and some north Asian countries are entitled to work until retirement age --currently age 60 in Singapore -- under existing work permits.
Draft Labour Code update
The American Chamber of Commerce in Vietnam has drawn up a tentative version (Vietnamese) of the draft Labour Code revision (IH 9/28/11) under discussion in the National Assembly Standing Committee on Social Affairs. One sticking point is whether the maximum period for fixed-term contracts should be capped at six or 10 years. The committee will hammer out a final draft by the end of April and submit it to the plenary in May.
Austerity package would reduce pension peg
AFP, Business Spectator
The administration’s austerity package, passed in a final vote in the upper house of Parliament 30 Mar 2012, includes a measure that would temporarily reduce the automatic peg for the state pension to a rate below inflation.
Parental leave extension proposed
Flanders News, RTBF
Parental leave will be extended from three to four months to bring Belgium’s law in line with European Union rules, the cabinet has decided, according to a Belgian Federal Public Service Employment, Labour and Social Dialogue news release (French). In March 2010, the European Commission adopted a directive to allow each parent to take up to four months of parental leave. Belgium has been under pressure to update its laws because the two-year transposition deadline has passed. Belgium’s extended parental leave will only be available to parents of children born or adopted after 8 Mar 2012. The cabinet also provided a right for workers returning from parental leave to request a more flexible work arrangement or schedule to enable a better balance between family and professional lives. A draft royal decree has been transmitted to the State Council.
Bulgaria’s health fund negotiates lower drug prices
The National Health Insurance Fund (NHIF) issued a 15 March press release (Bulgarian) on negotiated discounts ranging from 0.04% to 37.3% for 25 drugs and noted that agreements on lower prices for another 13 drugs are pending. The NHIF can negotiate discounts only for medications for which it pays 100% and that have no alternative. Incidentally, the Commission for Protection from Competition issued a 29 March press release stating that the Supreme Administrative Court has confirmed NHIF’s abuse of its dominant position when it breached competition regulations by imposing prices for the sale of medicines on pharmacies from 1 Feb 2008 through 1 Jun 2009.
Consultation on employee status in a bankruptcy
Sofia News, Sofia Echo, Fedee
A public consultation is under way for draft amendments to the Commercial Code that would raise the status of employees in a company bankruptcy. Workers would be empowered to file for bankruptcy on a company’s behalf if it has stopped paying their salaries. In a bankruptcy, an employee would be entitled to file a claim as a priority creditor. The Guaranteed Receivables of Workers and Employees Fund was established in 2005 to protect salaries in a company bankruptcy, but it has been too little help to too few people and last year’s austerity package suspended employer contributions to the fund.
New penalties mulled for those who don’t pay health premiums
Standart, Reuters, Novinite
The newly appointed health minister has proposed what she believes would be an effective punishment for people who don’t pay their health insurance premiums. Forfeiture of ID documents would leave a paperless citizen subject to fines for not having documents and unable to claim social welfare benefits. Incidentally, her contribution to the debate on drug pricing reform is a proposal that all 28 EU member states set uniform reimbursement rates.
Pension law change in light of UK QROPS reform
The States of Guernsey Legislation Select Committee has issued Income Tax (Pension Amendments) (Guernsey) Ordinance 2012, which establishes a new pension scheme to ensure that its popular QROPS (Qualifying Recognised Overseas Pension Schemes) offering continues to qualify under the UK’s tighter QROPS rules that will be effective on 6 April (IH 3/28/12, UK). The Guernsey ordinance took effect on 26 Mar 2012.
A blueprint for introducing a National Health Scheme, authorized in 2001 legislation but never implemented, is now awaiting review by the Health Ministry and Finance Ministry, the outgoing head of the Health Insurance Organisation (HIO) has revealed. Among the scheme’s key features:
- A public/private partnership in health delivery would be preceded by some investment in upgrading the public health system infrastructure.
- The family doctor would serve as gatekeeper.
- A national IT system would keep medical records accessible to all of a patient’s care providers and help the NHS monitor excess charges.
- The earnings-based contribution level would rise from 9% to 12%, but it is not yet determined how the burden would be shared.
Banker bonus caps proposed
Investment Week, Reuters
Parliament and member states are collaborating on legislation to implement the Basel III framework for banking reform. Prominent among the 2,195 amendments to the draft legislation are proposals to go beyond Basel III on banker bonuses. Variable pay would be capped at double the fixed salary and “golden hello” sign-on bonuses would be forfeitable if performance targets were not met. A parliamentary committee will review these amendments in late April.
Communication on migrant social security
The European Commission has issued a communication, The External Dimension of EU Social Security Coordination, which proposes further steps to refine existing EU social security coordination rules with third countries and facilitate worker mobility. Options include:
- Inserting a standard clause into bilateral social security agreements between member states and non-EU/EEA countries
- Possible use of a new EU social security agreement to enable joint coordination between member states and a third country
Closer coordination, particularly with Albania, Montenegro, San Marino and Turkey, is urged. A working group of national experts will meet annually to address national and EU social security coordination with third countries.
Parliament approves rules on OTC derivatives
Investment Europe, European Voice, IPE
The European Parliament has given its final approval to EU legislation that will regulate both OTC (over the counter) and non-OTC derivatives (IH 2/15/12). A “light touch” regime will apply to pension schemes, giving them three years to develop a non-disruptive model for central counterparty (CCP) clearance. The European Securities and Markets Authority will be responsible for identifying contracts subject to the clearing obligation. Third country CCPs will be recognized by the European Commission only when there is a regulatory environment equivalent to the EU's. Before the rules come into force, the European Supervision Authorities are required to submit technical standards on implementation by 30 September for adoption by the European Commission by end of 2012. An FAQ accompanies the press release.
Tax reform proposals leaked
The press has published accounts of the proposals that a committee for tax reform legislation is preparing to submit to Parliament at the end of the month. They reportedly include ending nearly all tax deductions, including those for medical expenses, life insurance premiums and social security contributions. The Finance Ministry has warned (Greek) stakeholders that the leaked information is “disaggregated data” from working papers that should not be given much credence before an official release.
Labor reform pushback
Reuters, WSJ, Adviser One
Although the prime minister managed to get the cabinet behind his labor reform package (IH 3/28/12), one member of the three-party ruling coalition has come out against these measures and plans to fight them in Parliament. Observers suggest that this could unravel the coalition or force some compromises. The prime minister has committed to the parliamentary route rather than passage by emergency decree before there is an official release.
Legislation to raise retirement age approved
Baltic Times, Baltic Course
The Latvian government has approved legislation that would gradually raise the retirement age. From 2014 through 2020, the official retirement age would rise from 62 to 65 for people born after 1 Jan 1952; those born after 1 Jul 1955 will be eligible to retire at age 65. The early retirement age would also increase to age 63 by 2020. These amendments to the Law on Pensions await approval in the Saeima. Opposition parties reportedly object to the increase and feel the government should pursue other opportunities for additional social budget revenue.
Social Security Act amendments come into force
Times of Malta, DI-VE, The Independent
Malta's Department of Information has issued Press release 0707, which outlines an array of Social Security Act amendments that came into effect on 27 Mar 2012. Highlights include:
- A means-tested benefit of free medicine for people suffering from 38 common diseases has more than doubled coverage, now extending to 79 diseases.
- A community work scheme paying the long-term unemployed up to 75% of the national minimum wage to perform community services 30 hours per week is extended to all who register for unemployment.
- There are new measures to preserve the rights and pensions for those who take reduced hours for family responsibilities.
Shops may stay open on most public holidays
Times of Malta, Malta Today
The Maltese government has issued press release 0709, which states that the government has granted the retail sector’s request to keep shops open on most public holidays for this year and next year without obtaining permission or paying for a €700 license. Good Friday and Christmas will be the only exceptions. According to news reports, the General Workers Union (GWU) endorses the move but seeks formal confirmation from the government that the double pay for work on public holidays is not being waived.
Occupational safety for independent contractors
SIA, De Telegraaf, Nu.nl
An employer is liable for the work safety of an independent contractor, the Supreme Court recently held, overturning earlier precedent. The court ruled that occupational safety standards for employees must extend to independent contractors when they are in the workplace. The Social Affairs Ministry is reportedly at work on legislation that would extend occupational health and safety rules to freelancers in the workplace
Ruling coalition accord on pension reform
Reuters, PNB, Dow Jones
After months of discord over pension reform, the ruling coalition has found common ground on a retirement age increase (IH 2/23/12). The retirement age – currently 65 for men and 60 for women – will climb to 67 in 2020 for men and 2040 for women. Men would qualify for partial retirement (half the normal pension) at age 65 after 40 years of work, women at 62 after 35 years. Those workers could then continue to work part-time until age 67 at which point they would qualify for full pensions. The prime minister announced that a bill would be submitted to Parliament shortly. The president gave the news a cautious welcome (Polish) but said that it would be premature to rule out a veto. Poland’s parliamentary lower house rejected on 30 March a call for a national referendum on raising the retirement age.
Clarification on compensation in foreign branches
The Finance Ministry’s Letter No.03-04-06/6/64 states that a Russian company’s compensation payments to foreign tax residents from sources outside Russia are not subject to Russian income tax. Letter No. 03-04-06/6/63, issued on the same day, confirmed that a Russian bank’s incentive payments to nonresident employees of foreign branches are not subject to Russian income tax. Combined, these appear to sharply limit the application of Letter No.3-04-06/6/13, which stated that bonuses paid by a Russian legal entity to employees at a representative office abroad are subject to Russian income tax whether or not the employees are Russian residents for tax purposes (IH 2/23/12).
PM proposes austerity measures
The Slovenian prime minister has outlined (Slovenian) a set of bold austerity measures (Slovenian) that he characterized as “negotiating positions” for tripartite budget talks with the social partners. The government’s objective is to reduce the budget deficit to under 4% GDP in 2012 and to achieve a balanced budget by 2015. Proposals include:
- Cutting back on parental leave and unemployment benefits
- Suspending the holiday allowance
- Reportedly, reducing lowering the annual number of public holidays from 14 to 12
- Reducing health care benefits
- Decreasing the pension benefits above a certain threshold
A revised 2012 budget proposal based on the negotiations should reach Parliament later this month.
AFP, The Telegraph, El Pais
Spanish unions staged a massive general strike over the labor reform decree (IH 3/14/12), which has yet to pass in Parliament, and promised more turmoil if the ruling party does not set out to negotiate revisions with social partners by 1 May. Observers view the 2012 Budget – freshly approved by the cabinet – as a conciliatory gesture to the populace as its sharp cuts largely spare statutory benefits and almost everything else that would directly affect private-sector workers.
Auto-enrolment earnings thresholds rise
IFA, Citywire, Employee Benefits
The UK government’s response to a consultation on the earnings threshold for automatic enrolment (AE) states that this year it plans to align the AE earnings trigger and qualifying earnings band thresholds with existing payroll thresholds (PAYE and National Insurance). The AE earnings trigger will align with the PAYE threshold at £8,105. The lower and upper limits of the AE qualifying earnings threshold will align with the National Insurance thresholds at £5,564 to £42,475 respectively, which means a steep rise from the initial proposed AE upper limit of £33,500. However, the government has stated that it wants to retain “flexibility” for future annual reviews and not “lock in” to this approach.
Pension funds issue executive pay proposals
The Guardian, Professional Pensions, IPE
Hermes Equity Ownership Services has issued a discussion paper, Proposed reforms to UK Executive Remuneration, which follows recent discussions between Hermes, the National Association of Pension Fund (NAPF) and remuneration committee heads of dozens of FTSE 100 companies. Among its proposals:
- Long-term share ownership to discourage short-term thinking and decision making
- Clawbacks as an appropriate response when pay doesn’t reflect performance
- Fixed pay for top executives and directors pegged to average pay increase for the company
- Ideas for binding shareholder votes that encourage engagement
- Recommendations to improve disclosure through remuneration reports and shareholder circulars
- Increased enforcement role for nomination and remuneration committees
According to news reports, pension fund investors and remuneration committee members will now convene a high-level working group to consider these and other approaches to better align pay with performance. The government is also currently consulting on executive pay issues and has requested input until 27 April.
2012 Federal budget
Benefits Canada, AP, Canadian Press
The 2012 federal budget includes a gradual increase in the minimum age for collecting Old Age Security (OAS) and Guaranteed Income Supplement (GIS) benefits from 65 to 67 between 2023 and 2029. The budget also includes:
- New long-term disability (LTD) insurance funding requirements for federally regulated private-sector employers
- A tax disincentive for “excessive employer contributions” to employee profit sharing plans (EPSPs)
- Limits on the fluctuation of unemployment insurance premiums
- A “strengthened” assessment for education credentials and refinements to the federal point system for bringing skilled workers into Canada
- Changes to group sickness and accident insurance plans
A Mercer Communiqué is available to Select Canada subscribers and Mercer colleagues.
Ontario 2012 Budget
Globe & Mail, National Post, Dow Jones
Ontario’s Finance Ministry has released the 2012 Budget. It reiterated its support for a modest, fully funded enhancement to the CPP and expressed concerns about the federally proposed pooled registered pension plan (PRPP) program. The budget extended the solvency funding relief program introduced in 2009 and confirmed that irrevocable letters of credit will be permitted to cover up to 15% of a plan’s solvency liability. Changes to the Ontario Drug Benefit deductible for high-income seniors and the establishment of an Unclaimed Intangible Property program to reunite people with unclaimed wages and pension benefits were also announced. A Mercer Communiqué is available to Select Canada subscribers and Mercer colleagues.
Health reform update
Chicago Tribune, NY Times, IHT
The US Supreme Court held a rare three-day hearing on a constitutional challenge to a core provision of the Affordable Care Act, the individual mandate (IH 11/16/11), which some maintain is essential to the success of the health reform program. The lines of questioning only confirmed that the decision is likely to be closely split. The ruling should arrive in June.
US House GOP budget seeks health policy overhaul
A Republican fiscal 2013 budget resolution passed by the US House of Representatives would fundamentally reform Medicare and Medicaid, repeal the health care reform law and make broad tax code changes that could reduce incentives for employer-sponsored health and other benefit programs. While the resolution is a nonstarter in the Democrat-controlled Senate, some less sweeping aspects of the plan could become law this year as both parties hunt for savings to stave off automatic budget cuts set for 2013.
Mandatory cancer insurance
Congress’s agenda reportedly now includes drawing up legislation for mandatory cancer insurance. The insurance would cover the costs of prevention, diagnosis and treatment of cancer-related illnesses up to a ceiling of 54,750 soles (US$20,502). People under age 18 and those earning the minimum wage or less would not be required to participate.
Labor reform decree set for 1 May
Venezuelanalysis, Agence EFE, Noticieros, LAHT
The presidential commission on labor reform (IH 12/01/11) has reportedly received over 19,000 proposals in advance of a major labor reform package that will be promulgated as a presidential decree May 1. The law has fundamentally been drafted in secret, but this much is known:
- Curbs, possibly even a ban, on subcontracted labor will be put in place.
- Restoration of severance pay and longevity benefits may be retroactive as far back as 1997.
- The perennial proposal for a shorter work week will be adopted.
The business sector has promised a constitutional challenge over the secrecy of the process.