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: Modified health reform agreement
Brazil: Social security withholding tax upheld; Social security tax trade-off
China: Social security tax update
India: IRDA Exposure Draft on Pension Products
New Zealand: KiwiSaver soft compulsion proposal
UK: WRIC final report
Al-Ahran, Daily News Egypt, Almasryalyoum
Prominent among the issues fueling the social unrest since the Mubarek government was deposed (IH 03/16/11) are the temporary anti-strike decree (IH 04/06/11) and the lingering monopoly of the government-affiliated Egyptian Trade Union Federation (ETUF). The Manpower Ministry ordered ETUF disbanded last week, pre-empting a case challenging the legitimacy of the ETUF that was about to get underway in Administrative Court. The court will go ahead and hear a case on the legality of the anti-strike decree. The acting head of the ETUF will attempt to organize a general strike calling for the ouster of the Manpower Minister.
Minimum wage update
Nigeria Bulletin, This Day, Daily Independent
Nigeria Bulletin, This Day, Daily Independent The federal government ultimately averted a nationwide strike by agreeing with the main union federations to implement Minimum Wage Act 2011 (IH 07/27/11). The issue has not been settled in several states and unions have already declared an indefinite strike in one state that had agreed to honor the minimum wage for several pay scales in state government but planned to pro-rate it for less skilled workers.
Modified health reform agreement; Tax reform discussion paper; Disability pension reform; Various
AAP, ABC, The Australia
The Prime Minister has announced conclusion of the National Health Reform Agreement (IH 07/27/11) with all states and territories. The guaranteed limit on the wait for elective surgery before the task would be passed on to the private health sector is now just a performance target with some financial incentives. States will retain more autonomy than originally planned and their GST (goods and services tax) proceeds will not be tapped to subsidize federal funding of the health system.
Also, the Treasurer has posted a press release on the Tax Forum Discussion Paper previewing the two-day tax forum that will be held in October. A few items worth noting:
- It states that the gradual hike in the Superannuation Guarantee from 9% to 12% is still scheduled to conclude on 1 Jul 2019 and will not be subject to further discussion. Some stakeholders have questioned whether the rise would only be contingent on passage of other tax measures.
- A recommendation from the Australia Future Tax System (AFTS) review on allowing for greater variety in superannuation drawdown products is included here.
- The AFTS proposal for a more fair and harmonized treatment of long-term savings vehicles also showed up.
Meanwhile, the Department of Community Services has detailed a reform of its disability support pension (DSP) featuring a tougher new set of impairment tables for determining one's level of inability to work. For instance, obesity or chronic pain alone would no longer qualify a person for DSP. The tables will be used for new applicants from 1 Jan 2012 on and are expected to reduce the rate of acceptance by 40%. This coincides with the Assistant Treasurer's announcement of draft legislation on tax relief on contributions to a Special Disability Trust (SDT), a savings plan for people with severe disabilities. Its capital gains tax exemptions would be retroactive to the launch of the scheme in fiscal 2006-07. A brief consultation on the draft will conclude on 12 August.
In other news:
Social security tax update
SCMP, Macau Daily Times
The Hong Kong and Macau press continue to depict the new social security rules extending coverage to foreign workers (IH 07/14/11) as awaiting implementation and the Chinese press is not refuting their accounts. The actual launch will reportedly come a few months after the State Council gives formal approval to the final draft of implementing regulations for the Social Insurance Law, which should happen by 1 October. Issues awaiting clarification include whether foreign workers seconded to a joint venture or a foreign-owned enterprise in China will be required to participate. Several countries, including the US, Japan and Russia, are now in rush negotiations with China for social security agreements. Hong Kong and Macau continue to press for an exemption.
Consultation conclusions on MPF intermediaries
The Mandatory Provident Fund Schemes Authority (MPFA) has posted Enhanced Regulation of Mandatory Provident Fund Intermediaries - Consultation Conclusions and Detailed Legislative Proposals (IH 04/06/11) along with an FAQ. It proposes replacing the administrative regulatory framework for MPF scheme intermediaries with a statutory regulatory framework empowered to investigate and sanction as warranted. The draft legislation should reach the Legislative Council in the fourth quarter of this year.
IRDA Exposure Draft on Pension Products; SEBI developments; More EPF expansion mulled; Responsible business guidelines
DNA, Business Standard, Times of India
The Insurance Regulatory and Development Authority (IRDA) has posted Exposure Draft on Pension Products, which proposes dropping the 4.5% guaranteed return rate on pension products to relieve insurers of undue pressure during a weak economy. A minimum guarantee based on the premium paid would be included in the contract to protect the interest of shareholders. The circular provides guidance on how an insurer should describe target benefit level and disclose risk exposure. On the date of surrender, up to one-third of the pension's value could be commuted and the balance would be converted to an annuity. Final guidelines are expected in early September.
Also, the Securities and Exchange Board of India (Sebi) has kept a high profile in recent weeks. Concept Paper on Proposed Alternative Investment Funds Regulation was posted last week for public comment. It addresses a shortfall in AIF regulations and appends draft regulations concerning such issues as risk and transparency. Comments are welcome through 3 August. Meanwhile, the chairman of Sebi has reportedly given mutual funds a green light to offer pension products and indicated that he will let pension plans invest in equities. The New Pension System (NPS) is already allowed up to 50% investment in equities. This and the IRDA guidance described above are expected to give the pension sector a significant boost.
In addition, the Labour and Employment Minister has divulged that some further Employee's Provident Fund (EPF) expansion (IH 07/20/11) is under consideration. Along with the extension of coverage to workers in all sectors, the government will look into lowering the minimum company staff threshold for EPF from 20 to 10. Another proposal in circulation would help relieve the fund's deficit by modifying the reduction factor for early pension.
Meanwhile, the Ministry of Corporate Affairs has published National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business, which adds India to the vanguard of governments advancing the ESG (Environmental, Social and Governance) criteria for corporate social responsibility (CSR) that are increasingly favored by institutional investors. One of the core principles is promotion of employee wellbeing via recognizing core rights, supporting work/life balance, maintaining equal opportunity policies and sponsoring wellness programs.
Managing expectations with health reform
Now that implementation of the 2004 Social Security Law (IH 07/27/11) appears to be within reach, the Health Ministry has made a disclaimer about what to expect from the universal health insurance component (IH 05/18/11). Given the cost of providing all the health services available via modern technology, the administration is aiming for something "more modest," a package of basic health services with emphasis on prevention and no assurance of heroic efforts to sustain life with unbudgeted treatments.
A few modest developments rate a mention:
- National health insurance coverage for a handful of additional medical conditions ranging from tonsillitis to uterine cancer will be phased in over the next four years. This will be financed by higher premiums, new co-payments and an expansion of the sin tax (IH 07/14/11).
- Korea International Labor Foundation (KOILAF) has published a bulletin reviewing the pension reform legislation (IH 08/03/11) that goes into effect next July.
- The Ministry of Employment and Labor offers foreign investors an orientation to industrial relations with Labor Management Manual for Foreign Investors 2011
More distress for foreign worker registration program
Bernama, The Star, Jakarta Post
Amidst published (false) reports that the Foreign Workers Biometric Registration Programme (IH 08/03/11) had a new deadline of 31 August, stakeholders are pressuring the government to start over from scratch. The computerized registration has been beset by glitches and, without formal guidance, employers and workers are often uncertain about how to comply. Another controversial element of this arrangement is that while registered workers are issued a free six-month work permit, renewing it will cost RM500 (US$166).
KiwiSaver soft compulsion proposal; Push for retirement age hike
NZPA, RNZ, The Press
The Prime Minister has given the press some hints about the administration's forthcoming KiwiSaver discussion document. One proposal envisions some kind of soft compulsion, likely drawing from the UK auto-enrolment model, for workers who are not already in the KiwiSaver scheme. The paper will consider alternative scenarios for boosting KiwiSaver membership. The opposition Labour Party has released a tax reform package with a counterproposal for popularizing KiwiSaver. Capital gains tax (CGT) would be waived on payouts and withdrawals from KiwiSaver and other retirement savings schemes. As of last week, the discussion document was due "in the next few weeks."
During the last election campaign, the Prime Minister famously promised to resign before he would raise the retirement age. The Retirement Commissioner and the Treasury Secretary are now among those urging that the retirement age gradually climb from 65 to 67. The administration's 2025 Taskforce recommended the same in an interim report and was "wound up" before it could produce a final report. The Finance Minister has said that those who want the government released from this pledge should "run for office."
Accelerated minimum wage hike
Baomoi. VNB, Thanh Nien
The regional monthly minimum wage hikes set for 1 January range as high as 40.7% because they come in response to high inflation and a currency revaluation. Reduced earning power and increased strife have now compelled the Labour Ministry to make the controversial move of pushing the change forward to 1 October. The lowest minimum will now rise to VND1.4 million (US$67.60) per month.
DRG system considered
The Health Ministry is preparing to change the formula for reimbursing health insurance companies. Officials expect it to be based on the Dutch variation of the Diagnosis-Related Groups (DRG) system, Diagnosis Treatment Combinations (DTC). The program should launch in January 2013.
Health exams for older workers subject to FBT
The Danish Tax Authority (SKAT) recently ruled (Danish only) that an employer's provision of medical check-ups to older workers is not exempt from fringe benefits tax (FBT). While medical benefits are generally tax exempt, those limited to a specific group are not. There is a new law that waives FBT on perks valued at up to 1,000 kroner (US$192) per year, so some workers would get at least a partial tax exemption for the physical exam.
Second pillar measures take effect; Training card limit rises
The Funded Pensions Act (IH 02/09/11), a package of second pillar reform measures, went into effect on 1 August. The industry drew attention to a handful of provisions:
- Asset transfers will be allowed three times a year, up from once a year. Analysts have expressed concern that participants taking advantage of this new freedom may not give adequate consideration to the 1% redemption fee on each transfer.
- The twice-yearly investment performance reports that asset managers must submit to members will now be monthly.
- Risk management procedures must be adopted.
- The most conservative of the available funds will become even more conservative, with the menu limited to bonds, credit risk and currency risk.
Also, the training card allowance for the unemployed - good for both vocational training and continuing education - rose (Estonian only) from 959 to 2,500 on 1 August under a Welfare Ministry decree.
Solvency II delay proposed
INN, AM Best, Captive.com
The prospect of the January 2013 Solvency II implementation being delayed at least a year (IH 05/11/11) became a little more concrete with the leak of a draft report from Parliament's Economic and Monetary Affairs Committee that calls for pushing the launch back to January 2014. Unresolved matters reportedly include the impact on captive insurers and how multinational insurance groups would be supervised. An EIOPA (European Insurance and Occupational Pensions Authority) spokeswoman has advised the press that stakeholders should not stop preparing for a January 2013 deadline, but EIOPA has yet to counter the rash of articles on the delay with a formal press release.
Payroll tax for MNCs considered; Gender-neutral marriage
Tax Analysts, YLE
The new administration's agenda for An Open, Fair and Bold Finland features several initiatives for combating the grey economy. It will study the prospect of requiring foreign companies to have a payroll tax for work performed in Finland even when the company does not have a permanent establishment in Finland. While it is not formally on the agenda, the Minister of the Environment said that the issue of same-sex marriage will also be on the administration's radar. A cross-party working group in Parliament has started to petition other legislators to reach the required 100 votes for plenary debate of a private member's bill on same-sex marriage.
Tax hike for life insurance income; Contribution period increase gazetted
The recently gazetted (French only) Financial Amendment Law for 2011 includes a provision raising the tax on proceeds from life insurance policies. It will rise from 20% to 25% on policies above 902,838 and lower amounts will be taxed at 20%.
Also, the rise in the contribution period for a full state pension that the Labor Minister announced last month (IH 07/14/11) became law with publication of Decree No. 2011-916 (French only) in the Journal Officiel on 2 August. People born in 1955 or later must now work 166 quarters (41.5 years) for the full benefit.
More provisions of draft Labour Code; Banker bonus rules
BBJ, MTI, Real Deal
Disputes over the draft Labour Code (IH 08/03/11) have placed more provisions in the spotlight and yielded more details on others:
- Sick leave would be cut to 70% of the average salary.
- The premium for night shift work would drop from 50% to 15%.
- Employers would not need to notify workers when sharing information about them with third parties.
- Employers would have the option of barring workers from taking more than 10 vacation days at a time.
- The 300-hour annual cap on overtime would be removed.
Meanwhile, financial regulator PSzAF has issued regulations harmonizing Hungary's rules on bank management compensation with the EU capital requirements directive (IH 12/15/10). Effective 31 August:
- Performance review will be based on a 3-5 year framework.
- At least 50% of a bonus must be in company stock and other non-cash instruments.
- 40-60% of bonus must be deferred 3-5 years.
Isle of Man
Guidance on a director's role
The Financial Supervision Commission has released Guidance on the responsibilities and duties of directors under the laws of the Isle of Man. The FSC drew it up expressly for directors in the financial services sector but notes that it is relevant to all Isle of Man-incorporated companies. Along with corporate governance standards and accountability for knowledge of all relevant laws and company articles of association, the guidance addresses liabilities of individual directors that could expose them to civil or criminal penalties.
Pension recalculation in a retirement deferral; Some short-term work permits waived.
The President has now signed the substitute measure (IH 02/02/11) for the withdrawn law that would have required people to choose either pension or continued employment when they reached retirement age (IH 01/06/11). Seniors who decide to stay with their jobs after the 1 October deadline for deciding between employment and pension will be able to have their benefit recalculated when they do eventually retire, provided the suspension of benefits has been for at least 18 months. This should usually result in a higher benefit, but if it doesn't, the earlier value of the pension can be maintained.
Also, the Labour Ministry has issued regulations that, effective 1 August, allow foreign workers to take on a range of temporary assignments without work permits. There is a six-month cap on these assignments. The ministry also rescinded the regulations that allow foreign people on temporary residence permits to take on an assignment of longer than six months without a work permit.
Health reform preview
BBC, Mediafax, Focus
The Health Minister abruptly resigned last week after the Finance Ministry included a health reform outline in the administration's 2011 Budget Rectification, which has now cleared the Cabinet. Health system financing measures previewed in the package include:
- A generic medicine system
- A set of co-payments
- A minimal package of basic medical services commensurate with the current 5.5% contribution rate
The legislation will be ready near the end of the year and the administration wants it passed by the end of March. A second wave of health reform initiatives in 2012 is set to boost quality and cost efficiency with electronic medical records, national health cards and electronic prescriptions.
Pension solidarity, guarantee proposals
The Labour Ministry has proposed increasing the solidarity component in state pension benefits. From 2016, people earning over 85% of the average wage will see their benefits gradually trimmed while those earning under 85% would receive more. Ultimately, only 52% of the income over that 85% threshold would be included in benefit calculations. Also, a Finance Ministry proposal aims to dissolve the guarantee insurance fund for protection of workers whose employers have defaulted on payments to the second pillar pension. Workers would be guaranteed a benefit funded through general revenues and funds recouped from employers would be plowed back into general revenues.
National health insurance
The Health Ministry has outlined a transition to mandatory national health insurance. Legislation has already been drafted, but the scheme cannot be introduced before 2015-16. In the intervening years, the ministry would push a range of health reform bills through the legislature, preparing the health system infrastructure, administration and delivery system for the new scheme.
WRIC final report; Employer-supported childcare FAQs; Agency worker rules
Global Pensions, People Management
The Workplace Retirement Income Commission (WRIC) announced the early release (IH 07/27/11) of its Final Report: Building a strong, stable and transparent pensions system. Several recommendations drew stakeholder attention:
- Fee caps for defined contribution (DC) plans under auto-enrolment should start at the stakeholder level of 1.5% then settle in at 1% after 10 years.
- The 8% minimum contribution level under auto-enrolment would not generate adequate retirement income, so the government should conduct a study to determine an appropriate contribution hike.
- Annuities should be more flexible, but also more transparent so that wide disparities in annuity rates cannot continue.
- The government should consult with the business sector to develop DC models that entail less risk exposure for participants.
Also, HM Revenue & Customs has issued a pair of FAQs advising employers and employees on changes to the tax regime for Employer-Supported Childcare (ESC) under Finance Act 2011 (IH 07/27/11). The changes are retroactive to 6 Apr 2011. Meanwhile, the business press has carried a spate of articles in recent weeks reminding employers that the 1 October entry into force of the Agency Workers Regulations is now less than two months away. Analysts warn that extending a broad spectrum of employment rights to agency workers who have been on assignment for at least 12 weeks may require considerable adjustment.
Foreign investor immigration shortcuts
Washington Post, Computer World
US Citizenship and Immigration Services (USCIS) has drawn up a set of measures to make the prospect of investing in the US more inviting to foreign entrepreneurs. These will include extending the Premium Processing Service to petitions for multinational executives and managers.
Social security withholding tax upheld; Social security tax trade-off; Ruling on pensionable salary
Tax Analysts, IBFD, Washington Post
The Supreme Court (STF) ruled (Portuguese only) in Extraordinary Appeal 603,191 that a social security levy on the invoice price for the services of agency workers and outsourced staff is constitutional. The levy was introduced as an alternative to the customary social security payroll tax in order to stem tax avoidance. Earlier STF rulings have defended this tax, but last week's decision is the first to attain the status of binding precedent.
The new President unveiled an economic stimulus package last week. One highlight is a pilot program for exchanging the 20% payroll social security tax for a 1.5% tax on gross income in several labor-intensive sectors including the textile, shoe and furniture industries. Another pilot will replace the social security tax with a 2.5% tax on gross income in the information communications and technology sector. This will start on 1 December 2011 and a review in December 2012 will determine whether the program should be expanded. There is also mention in the package of tax incentives for new hires and some tax relief on employer contributions to profit-sharing schemes.
Also, last month a federal district court ruled that overtime pay is not subject to the social security levy. Since 1991, the definition of "extra payment" exempt from social security contributions was limited to vacation pay, paid leave and profit sharing. The court's ruling is based on Supreme Court decisions in public sector cases and citing them in a private sector case is viewed by analysts as a shaky precedent.
New mine safety regulator
Merco Press, Time, BNamericas
The government has been slow to come up with occupational safety legislation in the key mining sector (IH 02/16/11) in the wake of last year's famous coal mine rescue. With the celebrity miners suing mining regulator National Geology and Mining Service (Sernageomin), the government has now submitted a bill to Congress that would shut the agency down. A new regulator would train safety experts, set higher penalties for infractions and have adequate staffing for regular inspections.
President backs new AFP fee structure
The President supports a measure broadly matching the AFP private pension fund sector's own proposal to base fees on the balance held in a pension account rather than on the member's salary (IH 06/29/11). Setting the formula for the new arrangement may spark a battle with the AFPs, but even they concede that some relief is needed. The administration's bill will reach Congress soon.
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