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International Headlines - 14 April 2010

Written by: Patrick Sweeney



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North America
Country index
Czech Republic
New Zealand
Sri Lanka

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:

Canada: Pension reform bill
Germany: Decision on employer obligation to outsourced pension
Netherlands: Response to pension reports
Philippines: Draft tax regulations for PERA
Taiwan: Cabinet approves 2G health plan
UK: Vigorous “wash up” features passage of Finance Bill and Equality Bill






Health reform counter proposal
The Australian, SMH, ABC

The Prime Minister released a report and a set of April 12 press releases fleshing out his health reform plan (IH 03/31/10). The new material allays some concerns about how the funding burden would be shared with the states and commits more resources to aged care and reducing waits for emergency care and elective surgery. The Premier of Victoria is the only state leader still firmly opposed to the administration’s health reform plan (IH 04/07/10). He is advancing an alternative plan in which states would retain control of their health systems, with a higher level of federal funding and emphases shifted to preventive care and the use of non-hospital settings. The Prime Minister is already seeking the opposition’s support for a referendum should the states fail to reach a consensus in the April 19 meeting on health reform.  




State pension on the drawing board; Clearing up labour case backlog
Financial Express, BD News, Energy Bangla
The Finance Minister has advised the press that the next budget will feature a “declaration” on the introduction of a national pension scheme. A task force will be appointed to determine the funding sources for a sustainable pension. Along with other social welfare schemes, it would benefit from a “smart card” ID system.


Meanwhile, the Labour Minister announced that the administration is taking decisive measures to clear a backlog of 40,000 labour court cases. It has endorsed the recommendation of a tripartite committee on occupational health that there be one court assigned to labour cases in each district. The committee has also proposed extensive amendments to the occupational safety laws and reinforcements for the labour inspectorate.




Social security tax considered

The Finance Minister mentioned in an interview that his staff is looking into replacing the social security fee with a social security tax set as a percentage of income. This would have little impact on most of the population and it would be a small gesture toward reversing the growing income gap.




Consultation on enterprise zone labour law exemptions: Various
Business Standard, Financial Express, Economic Times
The Commerce Ministry’s Department of Industrial Policy and Promotion (DIPP) has issued National Manufacturing Policy: A Discussion Paper, an introduction to the concept of National Manufacturing & Investment Zones (NMIZ). Designed to supersede other types of special economic zones (SEZ), NMIZs would have scores of labour law exemptions, including the ability to downsize, set longer hours, hire contract workers, assign work on any shift to women and deny staff the right to join a union.


In other news:

  • The Employees Provident Fund Organisation (EPFO) trustees are set to announce the 2010-11 interest rate this week. It is expected to follow the Finance and Investment Committee recommendation and maintain the rate at 8.5% this year.

  • The government is reportedly preparing a set of amendments to the Minimum Wages Act that would make the recommended national “floor rate” minimum wage mandatory. It would peg the national minimum wage to inflation with adjustments twice yearly.

  • The “Swavalamban scheme” to draw more people into the New Pension Scheme (NPS) with Rs 1,000 contributions (US $21.70) for new accounts over the next three years will only be offered to the unorganised sector (IH 03/03/10) and forthcoming “lock-in’ rules will curb premature withdrawal of the government match.




National health insurance financing note
AIR, Jakarta Globe

The Health Ministry still has not fully detailed the financing for the national health insurance scheme (IH 03/10/10), but the Health Minister divulged at a recent conference that there will be levies on both workers and their employers.




EPF withdrawal limit lowered; Personal Data Protection Bill
The Star, The Edge, Business Times
The Employees Provident Fund has announced that it has halved the amount that members with over RM1 million in their accounts may withdraw at one time to RM50,000 (US $15,674). There must be a three-month wait between withdrawals. Members are now also entitled to withdraw funds to rebuild a home that has had significant fire damage.


In addition, last week the Lower House of Parliament passed Personal Data Protection Act (PDPA), far-ranging legislation on a person’s right to have personal information kept private. While fundamentally a response to the excesses of enterprises that report on a person’s credit worthiness, it will reportedly have implications for a company’s storage and disclosure of employee records.


New Zealand


Draft code of conduct for financial advisers; KiwiSaver fees assailed
NZ Herald
The Securities Commission has opened a consultation on a draft code of conduct for financial advisers. People giving advice on sophisticated products such as KiwiSaver would need to be registered as authorized financial advisers. The commission would field complaints about advisers and a mechanism would be established for dispute resolution. The consultation closes on May 7.


Also, the Government Actuary noted at a recent conference that the KiwiSaver scheme is advancing faster than officials had expected and said that fees have to start coming down. He believes that a $1 per month administrative charge and an annual management fee of no more than 0.8% would be fair. The Retirement Commissioner said that it would be difficult for the government to track and regulate fees until it comes up with standardized requirements for reporting them.




Draft tax regulations for PERA
Business World, Business Mirror
The Bureau of Internal Revenue (BIR) opened a consultation on backdated draft tax regulations for Personal Equity and Retirement Accounts (PERA, IH 10/28/09) this week. There would be a 5% tax credit on contributions up to the annual maximum of P100,000 (US $2,224). The maximum for overseas Filipino workers (OFWs) would be P200,000. Withdrawals would be tax-exempt provided one has reached age 55 and has contributed for at least five years. Investment income would be exempt from many - but not all - taxes. There is no deadline for responses. The BIR "would like" to have final regulations by the end of this year but wants to conduct thorough consultations with tax experts and stakeholders.




Overtime ruling; Consultation on wage guidelines
Asia One

The United Workers of Electronic and Electrical Industries (Uweei) made the unusual move of representing a pair of workers in a hearing before the Manpower Ministry’s labour court. Uweei successfully argued that the employer had misclassified the workers as executives so they would not be eligible for overtime pay. The union has hailed the court’s ruling as a landmark decision, but a ministry official said that he did not expect this case to “open the floodgates.”  Incidentally, there are no high-profile controversies surrounding the consultation on wage-related guidelines for 2010/2011, but if you do care to weigh in on the issue, you have until this Friday, April 16.


Sri Lanka


Pension investment menu to grow
Asia Pulse

The chairman of the Securities and Exchange Commission has declared that occupational pension funds invest too cautiously, in great part because there are legal barriers to their making significant investments in the stock market. He plans to have the “regulatory bottlenecks” cleared for them.




Cabinet approves 2G health plan
Taipei Times, UDN, Dow Jones

The Executive Yuan has approved the draft amendments to the National Health Insurance Act that would introduce the Second Generation National Health Insurance System (IH 04/07/10). The premium would reflect total household income to capture nonsalary items like dividends and rental income. The Department of Health (DOH) estimates that 55%-60%of participants would not see a significant change in premiums, but it had to defend a plan to more than double the premium for single people because they have fewer responsibilities than heads of families and - according to the Health Minister - because they are more likely to have mental health problems. Expatriates returning to Taiwan for medical treatment would have to have been covered within the past two years and would have to pay premiums for the skipped period. Those who had gone more than two years without coverage would have to contribute to the system and wait four months for coverage. The package has been forwarded to the Legislative Yuan where its prospects have been weakened by the Health Minister's gaffe on higher premiums for single people.






Sick leave redesign
ADP, Sofia Echo

A late addition to the administration’s anti-crisis package (IH 04/07/10) would require employers to pay for the first two days of sick leave, have no payment for day three and have the National Social Security Institute (NSSI) take over payments on day four. This is a temporary measure that would conclude at the end of either 2010 or 2011.


Czech Republic


Pension reform recommendations
The Organisation for Economic Co-operation and Development has contributed to the Czech pension reform debate (IH 02/24/10) with recommendations –synopsized in a recent speech – that the administration should:

  • Harmonize male and female retirement age and phase out early retirement credits based on the number of children a women has had

  • At least partially peg retirement age to life expectancy

  • Create a “soft compulsion’ for pensions with automatic enrollment and opt-outs allowed




No discrimination against foreign hedge funds; First pillar mobility considered
Bloomberg, Reuters, IPE
In an exchange of letters with the US Treasury Secretary, the Internal Markets Commissioner has given assurance that the AIFM directive (IH 03/17/10) will not discriminate against hedge funds and private equity firms domiciled in non-EU countries. To qualify for an “EU passport,” they would have to meet standards for transparency and security but nothing beyond existing G20 guidelines. The commissioner also plans to meet with the secretary to work together on the “insane” delinkage between pay and performance in the banking sector.


In addition, a representative of DG Employment and Social Affairs recently conceded that the increasingly common phenomenon of mobile workers leaving small pension pots in several member states over the course of a career could have a detrimental effect on their retirement income. He responded to a pair of proposals for pension portability with the observation that they may meet resistance because there was inadequate support among member states for the migration of supplemental pensions in the IORP directive. A small dose of relief will come with the May 1, 2010, entry into force of the new social security coordination regulations 883/2004. If one’s benefit rights are “adversely affected” by conflicting decisions of two or more state institutions, one will now be entitled to a pension review and – if necessary – an appeal.




Ruling on physicians’ fees
The Connexion, Les Echos, Le Point

The Supreme Court has reversed an Appeals Court decision that had endorsed a growing practice among general practitioners of charging a €23 out-of-pocket fee, up from the €22 set in their contracts with the state health system. This was a civil disobedience as part of a campaign to get the fees raised. Many family physicians closed their offices last Thursday to protest the ruling.




Decision on employer obligation to outsourced pension; Kurzarbeit confirmation; ELENA compromise offer
Deutsche Welle, FAZ, IPE
An employer that had outsourced its pension to a Pensionskasse was sued when the Pensionskasse reneged on the benefit level that the employer had promised workers. The Hessan State Labour Court has ruled (German only) that a Pensionskasse has a legal right to reduce benefits and that this employer had made a benefit commitment to workers that it had not transferred to the Pensionskasse.


Also, the Chancellor has gone on record with confirmation that the Kurzarbeit short-hour subsidy scheme (IH 03/17/10) will be extended through 2011. In addition, the Justice Ministry has agreed to another review of the privacy concerns raised by the ELENA database (IH 04/07/10). There is no indication that opponents of the database will drop their Constitutional Court challenge. Incidentally, a recent account of this dispute mentioned that ELENA also tracks health status and participation in industrial actions.




Tax reform package submitted to Parliament
IBFD, Reuters
A package of tax law amendments now before Parliament would:

  • Tax any gain from the exercise of stock options as income

  • Subject the use and maintenance of company cars with factory value over €17,000 to income tax

  • Establish new tax bands for termination indemnity with the highest rate set at 30%

  • Set a 90% tax on bonuses at banks and financial firms

The bill is expected to pass soon.




Second pillar contribution partial restoration schedule

The second-pillar pension, which was on track for a 10% contribution level when it was cut back to 2% last year (IH 04/15/09), will stay at 2% this year. A Social Affairs Ministry representative confirmed that the rate will return to 6% in 2012 but said that the sole transitional year will be 2011 at 4%. She noted that the government no longer views 10% as a reasonable contribution level.




Financial sector pay limits
The Station
Financial regulator Commission for Monitoring the Financial Sector (CSSF) recently issued Circular 10/437 guidelines on remuneration policies in the financial sector (French only). Firms in this sector must have written pay policies reflecting these guidelines in place by June 30, 2010. The guidelines:

  • Provide  safeguards against reward for excess risk taking, including incentive compensation policies based on multiple years’ performance

  • Require a company to set a ceiling on bonuses

  • Mandate tangible performance measures for all components of compensation including golden parachutes

  • Detail the compensation information that must be disclosed to shareholders




Response to pension reports; Bonus forfeiture
DutchNews.nl, IPE, IPE
The Social Affairs Minister has delivered a formal response to recent pension reform reports (IH 02/18/10) and has made additional comments on his priorities for pension reform. Among his aims:

  • He would not substitute AAA government bonds for swap curves as a benchmark for pension accounting liability.

  • Pension governance models should be somewhat customizable for individual schemes.

  • There should be a regulatory framework to support investment policies that reflect the age demographic of participants.

  • The financial assessment framework (FTK) must be more rigorous.

  • Disclosure to pension fund participants must be clearer on the future value of benefits and on any risk exposure.

  • Legislation on greater transparency for pension fund investments should reach parliament by October 1.

The administration will consult with social partners on these recommendations.


In addition, the Finance Minister has told a reporter that any future government bailouts in the financial sector will have significant strings attached. Top management bonuses, even those reflecting performance in a previous year, would be suspended while a company was receiving government aid.




Pension manager accreditation; Pension bankruptcy bill
Prime-Tass, WPS
The Federal Financial Markets Service is circulating a draft directive on setting an accreditation system for managers and supervisors of private pension schemes. Standardized testing on financial market issues should be in place by October 2010 and fund managers will have to pass the exam to be accredited.


Also, the Duma has passed in its third reading a bill on preventing the bankruptcy of various financial institutions including private pension funds and insurance companies. It identifies the red flags that would trigger actions to restore solvency as well as responses such as funding infusions and reorganization. Most lines of insurance will have sharply higher minimum capital requirements from January 1, 2012. The bill will now be submitted for a vote in the Federation Council.




Pension equalization ruling
Professional Pensions

In the nearly two decades since the European Court of Justice Barber ruling on pension plan retirement age equalization, UK case law has been very strict (IH 07/15/09) in its approach to compliance, particularly computing benefits for a final salary scheme. Last week, Scotland’s Court of Session ruled that the benefit equalization process need not be ”unduly technical or restrictive.” There is now a prospect of some pension funding relief for Scottish companies, and – although the flexibility is based on principles of Scottish law that differ from the rest of the UK - some observers have suggested that English and Welsh companies may conceivably benefit from this precedent.




Tax laws amended

Parliament has passed a set of amendments to the Personal Income Tax Law and the Corporate Income Tax Law. Foreign resident citizens will now have the same tax deduction on social security contributions as Serbian resident individuals. Also, companies must deduct severance pay expenses in the same tax period that they are incurred. Both measures went into effect on March 27.




Windfall profit tax on bonuses rejected

The Council of States’ Committee for Economic Affairs and Taxation has defeated (French only) a proposal to levy a 50% windfall profit tax on 2009 bank bonuses above CHF40,000 (€27,933). Some members questioned the constitutionality of a retroactive tax like this one. The committee’s position is consistent with the President’s refusal (IH 12/23/09) to adopt similar UK and French models last year.




See also: Scotland


Vigorous “wash-up” features passage of Finance Bill and Equality Bill; April 6 arrivals; Campaign pledges
Personnel Today, NYT, The Guardian
When the executive branch website stopped accepting content for the duration of the election period last week (IH 04/07/10) Parliament had a few days left for a “wash-up” period, precipitously closing a session by passing as many bills as it can with minimal debate. The new Finance Bill (IH 04/07/10) was among those to power through to Royal Assent in a few days with no major changes. This was accomplished despite concerns that the sections on curbing pension tax relief for high earners include no provisions on pegging the threshold to inflation. These provisions enter into force in April 2011. There will be considerable pressure to address the inflation indexing issue in the regulations. The Equality Bill (IH 03/10/10) passed after a few tweaks, with the gender pay gap reporting, elimination of compensation secrecy clauses and ban on pre-employment health questionnaires still intact. Most provisions will come into effect in October 2010.


As usual, April 6 brought some new rules into effect. Among them:

Several issues rose to prominence in the first week of campaigning:

  • Labour Party Manifesto 2010 promises to restore the wage inflation peg for the Basic State Pension in 2012. It would double paid paternity leave to four weeks, which may be taken on a flexible basis. A flexible retirement would replace the default retirement age of 65 and a National Care Service would subsidize both long-term care and home-health care.

  • The Conservative Party plans to revise the IR35 rules on independent contractors to ensure that small businesses are not misclassified.

  • The National Insurance Contribution (NIC) is due to rise by 1% in April 2011, and the Conservatives maintain that they will be able to preclude this increase with painless cost-cutting measures.

  • The Prime Minister would – if re-elected – empower the Financial Services Authority (FSA) to reject illegitimate banking sector bonuses and employment contracts.


North America




Unemployment insurance phase two
Freeport News, BII

Last month, the National Insurance Board (NIB) announced that the interim stage of the unemployment insurance scheme (IH 07/22/09) will be replaced by the “permanent” contribution and benefit formula on June 1, 2010. Employer and employee NIB contributions would each rise by 0.5%, to 5.9% and 3.9%, respectively. For both parties, this increase will be capped at $2 per week. To qualify, one must make 52 weeks of contributions, including 13 of the last 26. The benefit will remain at 50% of average insurable income for up to 13 weeks.




Pension reform bill; Ontario drug system reform; Communiqué on Quebec budget
Benefits Canada, PBL, Mondaq
The government has now submitted Bill C-9 to Parliament. It combines many of the Finance Ministry’s pension reform proposals with numerous provisions from the federal budget (IH 03/31/10). Along with the measures mentioned last month, it would:

  • Raise the 10% pension surplus threshold to 25%

  • Ban any pension plan amendments that would reduce the scheme’s solvency ratio

  • Allow only the regulator to declare a partial plan termination

  • Grant immediate vesting once one becomes a plan participant but permit the two-year waiting period for participation to remain

Also, the Ontario Health Ministry has released more details on the drug system reform proposal mentioned in the 2010 Budget (IH 03/31/10). It would end the professional allowances paid to pharmacies that keep generic drug prices artificially high. This and other measures would halve the price of generic drugs and there would be steps to make them more accessible in rural areas. In addition, a new Mercer Communiqué reviews Quebec’s health financing proposal and other measures in its 2010-11 Budget (IH 04/07/10).




Benefit extension bill
LA Times, Dow Jones, AJC

Today the Senate is expected to approve HR 4851, providing a stopgap continuation of the COBRA subsidy and the unemployment benefit extension (IH 03/31/10) through the end of this month. Legislation that would continue both through the end of this year now has a tight deadline for passage.

Mercer International Headlines is published by the US international consulting practice library of Mercer. Comments or queries may be directed to Patrick Sweeney at +1 212 345 2462. Click here to find your local Mercer office.


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