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: Superannuation reform package
Canada: Several major pension reform developments
EU: Second-pillar reform deficit relief endorsed
New Zealand: Savings Working Group interim report
South Africa: Consultation on labour bills
Spain: Agreement on pension reform
UK: Consultation on early access to pension savings
Draft regs for WHS harmonisation; Various
Tax Analysts, SFW, AIR
The administration's goal of harmonizing state and federal occupational health and safety regulations came a step closer with the release of draft model Work Health and Safety Regulations last week. The release is accompanied by several draft model codes of practice and an FAQ. The consultation will run through April 4, 2011.
In other news:
Social security credit for mothers expanded
Under existing law, women who have given birth to five or more children and meet certain other conditions (at least 10 years of contributions, raising the child to age 8) are entitled to a year of state pension contribution credit per child. A recent Constitutional Court decision determined that foster mothers, adoptive mothers, stepmothers and trustees can be equally eligible for this credit.
Health insurance draft guidelines; Various
Business Standard, The Statesman, Business Line
The Insurance Regulatory & Development Authority (IRDA) draft guidelines for the health insurance sector are expanding in scope and are now expected to be ready for public consultation within a few months. Besides the long-awaited health insurance portability rules, there will be treatment protocols, norms on coverage exclusions, a regulatory framework for claim settlement and more standardized definitions.
In other news:
- There has been more talk and some action on changes (IH 11/17/10) and re-marketing for the National Pension Scheme (NPS). The Pension Fund Regulatory and Development Authority (PFRDA) has announced that subscribers will now have the option of making contributions in a single annual installment. PFRDA also plans to seize the licenses of under-performing NPS points of presence. It has ruled out a guaranteed return on NPS products.
- The Protection of Women against Sexual Harassment at Workplace Bill, 2010 (IH 09/29/10) is now before Parliament. It sets out a protocol for addressing grievances and proposes fine levels for noncompliant employers.
- The Ministry of Labour & Employment announced that a draft National Employment Policy is now under review. It will encompass worker protections, skills training, labour market policies and much more into a framework for a "holistic sustainable" approach to workplace issues.
Minimum pension to rise
Interfax, Kazakhstan Live
The President has confirmed that a previously determined rise in the minimum pension (IH 09/10/08) will arrive next month on schedule. The final in a series of three hikes, the 30% increase will raise the floor to 16,047 tenge (US$108.75) per month.
Working Hours Savings System; New parental leave formula; Hiring subsidy
The Ministry of Employment and Labor (MOEL) announced that a Working Hours Savings System is tentatively scheduled for a July 1, 2011, introduction. An expansion of existing flextime rules, it would increase the working hours aggregating period from three months to one year. Credits for overtime hours, night shift or holiday work would be convertible to leave time.
Meanwhile, MOEL has forwarded legislation to the National Assembly that would switch the parental leave benefit from a fixed figure for everybody to 40% of normal salary with a 1 million won (US$874.36) ceiling. There would be a partial benefit for those who take reduced hours instead of a full leave. Also, the subsidy for hiring people from targeted "vulnerable" populations will rise to 6.5 million won next year and much of it will be paid after the first six months on the job.
Longer maternity leave mulled
The Sun, Malay Mail, New Straits Times
The Women, Family and Community Development Ministry is preparing a cabinet paper on a proposal to raise the 60-day maternity leave in the private sector to 90 days. This would match a recent increase in the public sector. Another cabinet paper due soon from the ministry will propose a quota for females on the boards of government-linked companies.
Unpopular pension reform proposals
RNZ, GIDA, Dominion Post
The Retirement Commissioner's Review of Retirement Income Policy 2010 made waves with the assertion that raising the retirement age from 65 to 67 by 2033 is "inevitable." The President, who'd campaigned on a promise that given the choice he'd resign rather than raise the retirement age, categorically rejected the proposal. Also, the financial sector is weighing in on a proposal -- attributed to the government -- to either end or sharply reduce its KiwiSaver subsidy. A Savings Working Group is due to release its recommendations on improving the regulatory environment for retirement savings products early next year. Some stakeholders expect the subsidy cut to appear in this report or in the government's response.
Subcontracting bill update
The House Committee on Labor and Employment has given preliminary approval to House Bill No. 892 Security of Tenure Act. It is one of eight bills on labor contracting (IH 07/01/09) that the committee must now consolidate. The common theme in most of these bills is maintaining employment standards and establishing new rights (including holiday pay, severance pay, retirement benefits and social security) for contract workers.
Setback for 2G health bill
China Post, Taipei Times, CAN
The Legislative Yuan rejected the second generation health insurance reform bill (IH 08/26/10) when a dispute over premiums could not be resolved. The Department of Health is scheduled to submit a revision of the bill this week and the administration hopes to expedite it. The new premium formula will reportedly reflect total personal income (including such things as capital gains and rental income) rather than household income.
WAM, Gulf News, The National
A new Emiratisation scheme will require private-sector employers to fill at least 15% of their positions with Emiratis. Noncompliant companies will be fined. Accompanying measures will raise the fees for work permits and cut their duration from three years to two.
New tax law
Presidential Decree No. 17/2010 drastically revised the tax law with effect for tax years ending on or after December 31, 2010. There is a broad statement about "benefits, privileges, and rewards" being taxable at a 15% rate. Employers will get tax breaks on medical reimbursements, training costs and creating jobs for Yemeni citizens. Income from work performed outside of Yemen by a Yemeni national for a resident company will be taxable in Yemen. There will soon be enabling regulations with more details on the deductions allowed from employment income.
Red-white-red work permit
AP, Austrian Times
The government has embraced a social partner proposal for a new classification of work permit. The Interior Minister cited the US green card system as a model for the red-white-red card, but it also owes something to the UK points-based system. Applicants will be awarded credits based on professional qualifications, fluency in German and "integrity." All immigration quotas will be removed when the system is introduced. It is scheduled to launch on July 1, 2011.
Second pillar plans shelved
Having already postponed its introduction last spring (IH 05/05/10), the government has now notified the International Monetary Fund that a second pillar scheme will no longer be part of its pension reform agenda. A third pillar model is still settling in and the administration will focus its attention on major changes to the first pillar scheme.
Parliament approves retirement age hike
Parliament has passed a package of amendments to the Social Insurance Code featuring a gradual rise in the retirement age (IH 11/04/10) to 65 for men (2024) and 63 for women (2026). This will replace retirement ages of 63 for men and 60 for women teamed with a flexible points system setting age plus contribution period at 100 for men and 94 for women.
Jersey considers social security contribution hike
Jersey's 2011 Budget mentions a proposal to raise the social security contributions by 2% for people above a certain income level. The administration has not committed to this proposal, but it has agreed to consult with stakeholders on it in the coming months.
Breakthrough on accounting for second pillar reforms; Various
NYT, PAP, Euractiv
Poland's Finance Ministry announced that it has reached a preliminary agreement with the European Commission on factoring the cost of second pillar reforms into the calculations of national debt (IH 10/06/10). In the weeks since the commission fundamentally rejected a plea from nine member states to keep second-pillar start-up costs off the balance sheet, several states have threatened to abandon their second pillar plans and two (Hungary and Bulgaria) have already set out to dismantle schemes. The plan will be discussed in an EU summit that starts tomorrow and final approval of a detailed amendment to the Stability and Growth Pact is expected in the first quarter of next year.
In other news:
- The Committee of European Banking Supervisors (CEBS) has released the final draft of Guidelines on Remuneration Policies and Practices along with its response to feedback on the previous draft. From January 1, 2011, at least 60% of an executive bonus in the financial sector will have to be deferred for at least three years and no more than 20% may be delivered in cash. Guaranteed bonuses may not be set more than a year in advance and all financial firms – even those that aren't publicly held – will have to make public disclosure of their remuneration policies. While the extraterritorial scope of the first draft guidelines has been reduced, the final rules will apply to those executives based outside the EU who have significant management responsibilities in Europe.
- The European Economic and Social Committee (EESC) proposed tough new regulations and oversight for credit rating agencies. Most notably, the three largest agencies would lose their right to rate sovereign debt.
- The European Commission has opened a consultation on the Markets in Financial Instruments Directive (MIFID). This comes just three years after the directive came into force because the commission is concerned about maintaining adequate investor protection in a rapidly evolving market. The consultation will run through February 2, 2011.
Social security budget package passed
Reuters, Les Echos
A set of budget measures (IH 11/10/10) has secured passage in the Senate as the Law of Social Security Financing 2011 and the Constitutional Court is expected to rule in its favor in the coming days. In the final version:
- The added social contribution on "chapeau" scheme executive pensions would be 7% on annuities between â‚¬4-600 per month and 14% on the full amount for annuities over â‚¬600 per month.
- Higher tax rates on stock options and the grant of restricted stock units will only apply when the amount is over half of the annual social security ceiling (â‚¬17,676 in 2011).
- Termination payments above three times the social security ceiling would be subject to social security tax, but there would be a three-stage transition to lessen its impact on dismissed workers.
- The "forfait social" default levy on profit-sharing and other income that is exempt from social security tax would rise from 4% to 6%.
Barring unforeseen complications, it should be promulgated by the end of this month.
Individual contracts proposal
ANA, Kathimerini, Bloomberg
The Employment and Social Security Minister is on a "good path" with social partners for a set of labor reform measures that is due to reach the Cabinet this week. It would allow employers to negotiate individual contracts in place of collective bargaining. It is not clear whether it would be possible to replace existing collective agreements and there is mention of this flexibility requiring concessions such as a promise not to dismiss workers over a fixed period.
Second pillar removal bill
MTI, Real Deal, Reuters
Parliament has passed the legislation that will nationalize second pillar pension plan assets (IH 12/02/10). Second pillar participants who do not agree to transfer their savings to the state pension by January 31, 2011, will forfeit all future employer contributions to the state pension. A late-stage amendment to the bill will make the yields on assets transferred out of the second pillar scheme tax-free (IH 12/08/10). The transferred assets will be placed in a new fund managed by the Government Debt Management Agency (AKK). An opposition proposal to establish a voluntary pension scheme for withdrawn second pillar funds was defeated. Incidentally, the European Union advised Hungary that it will not be penalized for dismantling its second pillar.
2011 Budget, Finance Act
Irish Times, IPE, Euractiv
The Finance Ministry's Budget 2011 combines the "tough love" proposals in the National Recovery Plan (IH 12/02/10) with additional austerity measures:
- A new sovereign annuity market would make it easier for pension funds to meet their funding targets.
- The Pay-Related Social Insurance (PRSI) contribution ceiling would be eliminated.
- A Universal Social Charge would replace the Health Levy and the Income Levy.
- Benefits set to lose tax relief include employer-provided child care, employee share purchase schemes and subscriptions to professional bodies.
- Upon retirement, defined contribution plan members must choose between taking out annuities and transferring funds into an Approved Retirement Fund (ARF). There are new provisions for those who have already retired to switch to an ARF and for those with inadequate annuity income to switch to an AMRF (Approved Minimum Retirement Fund).
- Several social welfare benefits would be reduced in 2011.
- The budget measures in the forthcoming Finance Act will be joined by a Finance Ministry proposal to impose a 90% tax on the bonuses of top management in banks that are receiving state assistance. The tax would not be enforceable until next year, but in the case of one bank that is partially state-owned, there will be a measure making financial support contingent on cancelling all bonuses, even those in recognition of work from an earlier period.
Pension contribution, benefit adjustments
Baltic Course, BNS, Baltic Daily
The latest reports on the second pillar contribution level (IH 12/02/10) see it staying at 2% through 2012, then rising to 6% in 2013. Under provisions included in the 2011 Budget, all pensions above LVL135 (US$239.45) per month would be frozen until 2013. Parliament will stage a second vote on the measure tomorrow.
Parliament adopts austerity package
DRE, IBFD, Tax Analysts
The Chamber of Deputies has passed (French only) a set of tax measures aimed at relieving the financial crisis. Effective January 1, 2011:
- Severance pay will no longer be tax deductible above â‚¬300,000.
- The 2.5% employer solidarity fund unemployment insurance contribution that was initially slated to rise to 4% will double to 5%.
- The 2.5% employee solidarity fund contribution will rise to 4% on annual income below â‚¬150,000 and 6% on anything above that figure.
New pension peg proposed; Workfare plan
The Social Affairs Minister is preparing a measure that would switch the annual peg for the state pension from the pay hikes agreed in national wage agreements to average annual wage hikes, which would often but not always be lower. Also, two of the ruling coalition partners now believe that they can cobble together a majority in Parliament for a proposal to require any able-bodied person on social benefits to perform community services.
Labor market reforms mulled
Bloomberg, Financial Times, EFE
Last week's tripartite negotiations on a possible labor reform package addressed perceived "rigidities" in the labor law. The group has fielded proposals to alter the severance pay formula and to pre-fund the unemployment benefit. The Prime Minister said that a package of proposals should be ready this week.
Pension reform clears Parliament; Social tax changes; Childcare leave options
Mediafax, Rompres, IBFD
The pension reform package (IH 11/17/10) that the administration negotiated with the International Monetary Fund (IMF) has now been approved in Parliament. The final version raises the retirement age to 65 for men and 63 for women by 2030 according to the President's specifications, so he is expected to sign it.
Also, the Cabinet has approved a pair of emergency ordinances on social taxes. One would consolidate five social contributions into a single tax. The other would require retirees with pensions higher than 740Ron (US$227.82) per month to pay contributions to the Unique National Health Insurance Fund. They still need Parliament's approval.
Another emergency ordinance to win the Cabinet's endorsement offers a compromise approach on statutory maternity leave (IH 12/08/10):
- The paid childcare leave would be cut down to one year with the maximum benefit staying at 3,400RON. Anyone already on maternity leave would be grandfathered for the two-year leave.
- An additional 12-month period of unpaid leave with one's job guaranteed upon completion would be allowed.
- Parents would be paid a 500RON bonus upon returning to work and employers would not be able to fire them during their first six months back on the job.
Next year will see more legislation on family benefits, including nursery vouchers.
National Council approves Income Tax Act amendments
The legislature has passed a set of tax measures (IH 09/29/10) that would end employee tax breaks on:
- Employer contributions to supplementary pension plans
- Employer payment of life insurance premiums
- Employer deposits into saving schemes
- Allowances for miscellaneous expenses on business trips.
If the President signs this bill, it will come into effect on January 1, 2011.
Ruling on pension freeze
A controversial feature of the forthcoming pension reform legislation (IH 11/10/10) has survived a major legal challenge. The Supreme Court has dismissed an appeal from the main opposition Popular Party against administration plans to freeze the state pension next year.
Finance Bill 2011; Various
The Guardian, Global Pensions, IPE
HM Treasury has opened a consultation on the draft Finance Bill 2011 featuring some of the most anticipated benefit measures of the year:
- The annual allowance for tax breaks on pension savings would drop from Â£255,000 to Â£50,000, effective April 2011. From April 2012, the Â£1.8 million lifetime allowance would be trimmed to Â£1.5 million.
- An occupational defined benefit plan would be able to replace the retail price inflation (RPI) peg for benefit increases with a consumer price inflation (CPI) link, provided that there is no contractual agreement committing the scheme to RPI. A contractual agreement override had been under consideration, but did not make the final cut. The Department for Work and Pensions has produced its own consultation on this issue, The impact of using CPI as the measure of price increases on private sector occupational pension schemes. Responses are welcome through March 2, 2011.
- The requirement for defined contribution plan participants to take an annuity at age 75 would be lifted. Members age 75 and over would be able to continue deferring withdrawals and those with a lifetime income of at least Â£20,000 per year would have greater drawdown flexibility. A Mercer bulletin addresses the implications of the latter.
- A handful of provisions would refine the tax regime for National Employment Savings Trust (NEST) to ensure that its launch is not impeded by unnecessary tax disincentives. Most notably, any borrowing attributed to the costs of setting up or managing a NEST scheme would be tax exempt.
- Modifications to the tax regime for employer-supported childcare (ESC) will set new benefit caps for higher or additional rate tax payers.
- Disguised remuneration measures are part of an anti-avoidance initiative. The provision of tax-free or tax-deferred compensation, loans or pension contributions via third party arrangements such as offshore trusts is targeted for a "crackdown."
Comments are welcome through February 9, 2011.
In other news:
- The Pensions Regulator (TPR) has issued the final draft of Regulatory Guidance: Incentive Exercises. It advises trustees that transfer incentives for members of defined benefit plans are generally not in their best interest and should be approached with caution.
- TPR also made news with the announcement that a judge has ruled against the two multinationals that challenged their Financial Support Directions (IH 10/06/10).
- Another TPR release is the valedictory speech of its outgoing chairman that previewed plans to curb the high-risk investments of defined benefit schemes with large deficits. He also noted that 2011 will see a revised regulatory framework to address the many problems of defined contribution schemes.
Parliament approves budget package; Various
National Post, Montreal Gazette, Tax Analysts
The Finance Ministry's Bill C-47 has now cleared Parliament. The final version includes all of the measures bulleted in IH 10/12/10 and IH 10/06/10 as well as incentives for job creation and a mechanism for resolving disputes when a pension is subject to the laws of more than one jurisdiction.
In other news:
- Bill C-481, a measure to ban mandatory retirement age in sectors subject to federal regulations, has passed in its second reading in the House of Commons. Now in committee, the bill is said to have poor prospects because private members' bills rarely go the distance.
- Bill 399 before the Quebec National Assembly would modernize the law on strikebreakers to include telecommuters and other off-site workers who don't need to actually cross a picket line.
- Following recommendations from the Canada Employment Insurance Financing Board, the Finance Minister announced that the two-year freeze on Employment Insurance premiums would end with an unexpectedly modest rise in the employee contribution from 1.73% to 1.78%.
Unemployment extension bill advances; IRS Priority Guidance Plan
Tax Analysts, LVGS
The Senate has endorsed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (S.A. 4753, IH 12/08/10) in a key procedural vote. There is considerable opposition to it, but the key proposals are expected to survive an expedited passage intact. Also, the Internal Revenue Service Priority Guidance Plan 2010-11 features a bounty of final regulations and guidance on employee benefits. Perhaps the most intriguing item is "Guidance on international tax issues related to retirement plans."
Pension reform passed
Reuters, Plan Sponsor, AP
Congress has approved and the President has signed controversial pension reform legislation (IH 11/24/10). It will:
- Nationalize the privately managed AFP second pillar pension
- Lower the retirement age – now 65 for men and 60 for women – to 58
- Establish a hardship retirement at age 56 for the mining sector
- Create a solidarity fund for employers and formal sector workers to supplement the pension contributions of informal sector workers
One analyst noted that the AFP system was introduced 13 years ago when the state pension experienced a funding crisis.
Health reform refinements
The President has accepted (Spanish only) most of the proposals in the report from the Presidential Advisory Committee on Health. A universal health plan would broaden the limited scope of the AUGE public health scheme to cover preventive and catastrophic care. A set of explicit guarantees in health (GES) includes a measure to enlist the private health sector in ensuring that waiting periods for services are capped.
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