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:
Hong Kong: Chief Executive’s 2011-12 Policy Address
Japan: Pension reform proposals
Netherlands: Pushback on pension reform, expat tax regime
Philippines: Draft PERA tax rules
Portugal: 2012 Budget
UK: Auto-enrolment update; FRC diversity reporting requirement
Prudential regulations for pension fund investment
IOL, Pretoria News
Regulation 28 of the Pension Funds Act was quietly finalized earlier this year and has lately garnered some press coverage as the 31 December close of the compliance phase-in approaches. The regulations are a modernization of the rules on pension fund investment (IH 12/08/10). A prudent investment policy should safely accommodate diverse investments, including some of the higher risk ones like derivatives and foreign assets – and there are a variety of asset limits. The investment policy statement will have to include a passage weighing the environmental, social and governance (ESG) aspects of investment selection.
Second-pillar pension bill
AKIpress, ABC, TNA
As part of its three-pillar pension reform agenda, the government has signaled significant changes for the second-pillar pension model:
- A bill now before Parliament would exempt working pensioners from the 2% contribution to this fund.
- Under another measure in the pipeline, a member who permanently leaves the country would be able to withdraw funds from the account.
- There is also a plan that would entitle a deceased member’s family to inherit part of the funds left in the account.
- Standards for registration of fund management companies are now expected by the end of next year.
Chief Executive’s 2011-12 Policy Address
SCMP, The Standard
The Chief Executive delivered his 2011-12 Policy Address, providing updates on some initiatives and introducing a few new ones. Among the highlights:
- The public consultation on the Health Protection Scheme (HPS) (IH 07/20/11) has encouraged the administration to move forward with it. While fleshing out the scheme and developing an infrastructure for it will be a massive operation, the administration is now hoping to pass the implementing legislation in 2013.
- A study on standardizing working hours (IH 06/29/11) should be completed by mid-2012.
- The paid paternity leave study (IH 09/28/11) will tentatively be followed by entitlement to a week or so of the leave in the public sector, which would be a test kitchen for a statutory benefit in the private sector.
- New initiatives to address a manpower shortage by attracting skilled foreign workers are in development.
- The monthly HK$1,000 (US$128.39) social security allowance will now be portable for Hong Kong seniors living in Guangdong. This is the first step toward a broader policy of welfare benefit portability for retirees.
Trachtenberg report advances as opposition gels
Globes, JTA, Ha’aretz
The Prime Minister managed to secure the Cabinet’s approval for the Trachtenberg Committee’s recommendations (IH 10/12/11), but there is strong opposition in the Knesset. Labor federation Histadrut has called for a general strike in response to these proposals. The strike would also spotlight the proliferation and poor working conditions of contract workers.
Pension reform proposals; Medical co-payment surcharge
Daily Yomiuri, Japan Times, Jiji Press
The Health, Labor and Welfare (HLW) Ministry has presented a set of pension system reform proposals to the Social Security Council. Three caught the press’s attention:
- The most high-profile presented a trio of scenarios for raising the pension eligibility age. The mildest option would speed up the scheduled climb in retirement age from 60 to 65, concluding in 2021 rather than 2025. More radical solutions would raise it to 68, even 70 by one account. Social partners have warned the administration that it must first make the job market more hospitable to older workers.
- As the consumption tax hike keeps getting pushed into the future, the ministry plans to benefit from it in advance by issuing "bridging bonds" that would be redeemed with proceeds from the consumption tax increase, once it takes effect.
- The earnings test for reducing kosei nenkin pension benefits when people aged 60-64 keep their jobs and collect a pension is now viewed as too harsh. The formula will be modified so it is not a disincentive for retirement deferral.
The ministry aims to have a major pension reform plan completed by the end of the year.
Another HLW proposal would set a flat ¥100 (US$1.30) surcharge on existing copayments for all hospital visits. This would help to fund the increasingly expensive special refund system that partially subsidizes the high payments for people with catastrophic illnesses. The ministry aims to have a bill before the Diet by the end of this year, but the Japan Medical Association and other stakeholders oppose a flat-rate surcharge for all income levels.
Work permit portability rules
The Ministry of Social Affairs and Labor has issued regulations allowing foreign workers to transfer their work permits to a new employer after serving three years with their sponsors provided they give three months’ notice. There is no exemption for workers who have completed a fixed-term assignment with the original employer and no new contracts will be accepted until the three-month notification period is over.
Pensions reach subsistence wage level
The latest of several large pension increases (IH 06/10/09) has brought the average state pension to 3,792som (US$84.05) per month, approximately the minimum subsistence level – and 136% over a year ago this month. The subsistence wage will now serve as a floor for pension benefits.
Minimum wage compromise
Arabian Business, MEREP, NOW Lebanon
At the 11th hour, the Cabinet arrived at a minimum wage compromise that sufficed to have the general strike suspended (IH 10/12/11):
- The LL500,000 minimum monthly wage rose by 40% to LL700,000 (US$467).
- All monthly salaries under LL1million rose by LL200,000.
- There is a LL300,000 hike for salaries ranging from LL1million to LL1.8million.
Significant factions of employers and unions have not embraced the deal.
Melanesian Spearhead Group
Mobility precedent in MSG
PACNews, SSN, Solomon Times
The Melanesian Spearhead Group (MSG) has slowly evolved over a few decades from forming a trade bloc with shared cultural ties to exploring greater economic harmony. The five island nations endorsed the draft framework of an MSG Labour Mobility Scheme and an MOU on a Skills Movement Scheme earlier this year. Last week, Papua New Guinea and the Solomon Islands took the lead with a joint communiqué stripping "all economic barriers" including work permit requirements and other limits on cross-border worker mobility. They plan to negotiate very similar agreements with the other MSG member states.
Unions and strikes are now legal
Myanmar Times, Asia One, AFP
After some vacillation over the exact terms of employer representation (IH 06/15/11), Parliament has passed and the President has signed Labour Organisation Bill, which – if enforced – would allow groups of at least 30 workers to form unions, provided they comprise at least 10% of the workers they would represent. The unions would be able to mediate between workers and employers and to represent workers with unfair dismissal grievances. Unions must give employers 14 days' notice before a strike and there are numerous restrictions on where a strike may be held. Most "essential service" exemptions are in the public sector and employers are enjoined from closing a workplace during an industrial dispute. Stakeholders have expressed cautious optimism over the new law.
Labor rights for foreign workers
The government has appointed an interministerial committee to work out the details of extending protections under the Labor Act to foreign workers. This would entail ending exemptions for various occupations in which foreign workers are able to obtain jobs without getting a work permit. The committee has already ordered the Home Ministry to draft and enforce a rule making a work permit certificate a prerequisite in applying for a non-tourist visa.
ACC levy cut proposed
Tax Analysts; IBFD
The board of the Accident Compensation Corporation (ACC) has recommended that the ACC levy be reduced by 17% for workers and 22% for employers for the fiscal year starting 1 Apr 2012. The ACC has a robust funding surplus that it attributes to a successful return-to-work program.
Draft PERA tax rules
The Bureau of Internal Revenue (BIR) has finally published draft regulations implementing tax provisions of Personal Equity and Retirement Account (PERA) Act of 2008 (IH 08/03/11). Stakeholders have yet to flag any surprises in the draft. Workers may contribute up to P100,000 (US$2,306) per year to an account and will receive a partial tax credit on contributions, but there is no tax break for employer contributions. Readers are invited to comment and there is no mention of a deadline, but the Capital Market Development Council (CMDC) will conclude its review of the draft by the end of this month. The final regulations and a separate Revenue Memorandum Order (RMO) on reporting PERA transactions to the BIR should arrive soon as the PERA regulations are slated to take effect on 1 Jan 2012.
Unemployment benefits update; Wage peg, job security for nationals
MENA.FN, Arabian Business, Saudi Gazette
When the emergency package of social benefits, including an unemployment allowance, was introduced last spring (IH 03/30/11), a registration program for unemployment benefits ran into trouble because people registered repeatedly and some applied while still employed because the dole was more appealing. Registration was started over last month and unemployment benefits will now start being paid to claimants next month.
Next year, Saudi banks will be engaged to start monitoring salaries in the private sector to ensure that Saudi nationals get cost of living adjustments. Also, the Labor Minister has warned employers that those found dismissing Saudi workers without adequate cause will lose unspecified privileges.
Straits Times, Today, CNA
The Ministry of Manpower has posted its addendum to the President’s Address 2011.
- the promised tripartite review of CPF contributions for workers age 50 and up (IH 07/27/11);
- a policy of attracting skilled foreign workers while keeping non-citizens below one-third of the workforce;
- guidance and assistance to employers struggling to comply with the Retirement and Re-employment Act; and
- refinement of the workfare support system for low-wage workers.
Clarification on maternity leave measure
The expanded maternity leave provision of the draft Labor Code revision (IH 09/28/11) now before the National Assembly either was misreported earlier or has mutated since. The four-month leave entitlement would expand to five months, not six, for most women. Only those employed in toxic or otherwise hazardous environments would be entitled to six months. The heads of the legislature’s legal and finance committees support this measure.
Pension reform nixed
WSJ, Belarus Digest, Telegraf
Despite high inflation pushing the monthly income of many pensioners below US$100, the Ministry of Labor and Social Security has ruled out significant pension reform in the short-to-medium term. The government will not tamper with privileged pensions and the retirement age will stay unchanged for at least the next five years.
Senate rejects pension reform bill; Higher deduction on pension premiums proposed
Plan Sponsor, Reuters, IPE
As expected (IH 09/22/11), the Senate has cast largely symbolic votes against the administration’s second-pillar pension reform bill and some related legislation. The Chamber of Deputies will overturn this veto soon. The main opposition party plans to make rescinding this bill part of its campaign platform. Also, the Finance Ministry has proposed raising the deductible ceiling on pension and life insurance premiums from CZP24,000 to CZK30,000 (US$1,683). Employers and unions believe that the administration should go one better and lift the limit to CZK36,000.
Parental pension credits; Leave pay formula simplified
ERR, Baltic Daily, Baltic Course
The council of the ruling coalition has approved draft legislation that would set a range of "parent pension" credits, state pension contributions reflecting the time spent out of the workforce raising children up to age 3. For children born in 2013 or later, the state would contribute 4% of the salary subject to social tax to the mandatory second-pillar pension for the parenting period. There are supplemental payments under the first-pillar scheme for the parents of children born before 2013.
Also, the Ministry of Social Affairs has drafted two measures (Estonian only) designed to remove some of the confusion and administrative burden of calculating pay for those paid leave periods that require payment of "average wage" under the Employment Contracts Act. There were consultations with social partners and experts over the past year and the new rules are set to take effect on 1 Jan 2012.
Maternity leave update
The Independent, The Telegraph, Daily Express
A set of amendments to existing rules on the protection of pregnant workers and new mothers hit a wall this summer over a key measure that would have extended the minimum maternity leave period from 14 weeks to 20 (IH 06/29/11). Parliament will publish a revision by the end of this year, but the UK business sector has already flagged a "stealth" provision that it plans to block. Mothers would get two one-hour breastfeeding breaks per workday with the option of a third hour if two children are breastfeeding. UK employers are also gearing up to fight the provision granting new mothers the right to reasonable accommodation of flexible hours requests.
Extension for expat tax break; Collective bargaining compromise
One provision of the 2012 Budget (IH 10/05/11) would grant a four-year reprieve to a special tax regime for skilled foreign workers. The law that would have expired this year will now apply to qualifying foreign workers hired by the end of 2015. Those with specialized skills and a salary to reflect it (at least €5,800 per month) would pay a flat rate of 35% for up to 48 months.
Also, the government interceded to help social partners complete a national income agreement (IH 10/12/11). In exchange for satisfactory terms on modest salary increases, there are a number of concessions to employers and a couple of tax breaks. A 0.2% increase in employee pension contributions that is set for January 2012 would be offset by a tax cut, and a scheduled 0.2% hike in the unemployment insurance levy for both employees and employers has been shelved. This framework agreement will now be the basis for sectoral-level collective bargaining.
Troika demands IR reforms
Kathimerini, Business Week, Express.GR
Greece’s "troika" of lenders – the EU, the European Central Bank and the International Monetary Fund (IMF) – has set new austerity requirements for the next bailout payment, which is urgently needed as Greece is about a month away from bankruptcy. The International Trade Union Confederation (ITUC) is among those now charging that worker suppression is a disproportionate part of the cure. Under Finance Ministry legislation now before Parliament, there would be a three-year freeze on national-level collective bargaining agreements. Negotiations could devolve to enterprises and non-union workers would be empowered to negotiate. The minimum wage – currently €750 per month – has also been targeted. It should be noted that accounts of the legislation vary somewhat and that an EU representative on the troika characterized the minimum wage and collective bargaining changes as recommendations, not requirements. Private and public sector workers are staging a national strike over the bill today.
Tripartite meetings resume; Extension for new hire tax credit
Le Quotidien, Paperjam, Planet Labour
Eighteen months after its dissolution when the government and social partners could not agree on modifications to wage indexing (IH 04/21/10), the tripartite social dialogue has resumed (French only). Indexation was a main topic of the reunion meeting and they will meet again later this month to more broadly discuss the government’s austerity program. Incidentally, the 2012 Budget (French only) included one provision worth noting. A 1996 law providing a tax credit to companies that hire unemployed persons will be extended through 2014.
Minimum wage debut
SET Times, Open Globe, MINA
After 20 years of negotiations, the government has reached an agreement with social partners on establishing a monthly minimum wage. From 1 Jan 2012, a floor salary of MKD8,050 (US$182.96 ) will be introduced, with full compliance phased in over three years.
Pushback on pension reform, expat tax regime
RNW, DutchNews.nl, IPE
The youth factions of five major parties have teamed up for a "Pensions Rebellion" over the likelihood that the Pensions Agreement (IH 09/22/11) will short-change future generations. The Social Affairs and Labor Minister acknowledges the danger and recommends an accelerated retirement age hike as one way to prevent underfunding. The Council of State, which serves as both Supreme Administrative Court and a legal advisory body, has also warned that the plan may prove unfair to the young and noted that the continued support for early retirement conflicts with the argument for raising the retirement age.
Meanwhile, the cities of Amsterdam, Rotterdam and the Hague have raised concerns – Amsterdam formally with the Finance Ministry – that the 2012 Budget (IH 09/28/11) measures modifying the 30% rule on expatriate tax relief could have unintended consequences for their economies. The higher salary requirement, the exclusion of workers within 150km of Dutch borders (IH 09/22/11) and other restrictions on eligibility could sharply reduce the nation’s appeal to both skilled foreign workers in many key occupations and foreign investors.
IBFD, Reuters, Financial Times
The dominant party of the center-right coalition government consolidated its position in last week’s national elections and plans to maintain the same coalition. Among the proposals it campaigned on were diversion of shale gas revenues to help finance the state pension and a tax break on up to 6% of a person’s contribution to an additional voluntary pension fund. The administration is being urged to use its election mandate to end government inertia on urgent matters such as raising the retirement age and ending privileged pensions.
EFE, Expatica, The Guardian
Presented as "the rejection of the collapse of the country," the 2012 state budget (Portuguese only) offers an array of austerity measures:
- It would raise the minimum early retirement age from 55 to 57 and allow that only for those who have contributed to the system for at least 32 years.
- For the next two years the normal work day would be half an hour longer.
- Most social benefits – including maternity, unemployment and sickness benefits – would be exempt from personal income tax.
The Cabinet has already approved this budget and passage in Parliament could come as early as this week.
Social security levy cut debated
A tax reform package now before Parliament would reduce the 19% social security contribution to 18%. Employers are among those lobbying legislators for deeper cuts.
Auto-enrolment update; FRC diversity reporting requirement; Pensions Bill in final reading; FSDs upheld; DC trustee guidance
Professional Pension, Sunday Times
The government commissioned the Beecroft report on cutting red tape in the private sector but has now sat on it for several weeks, reportedly because it found some of the proposals too provocative. Without formal release, it has fostered debate on whether the 12 Oct 2012, debut of auto-enrolment under the government’s pension reform timetable is premature (IH 08/17/11). The report recommends delaying it and exempting smaller companies. (Another proposal is "US-style" tolerance for unfair dismissal.) The Pensions Minister has rejected these proposals and is confident of a smooth roll-out next October. He cautioned, though, that "auto-enrolment is a massive control experiment" that may require major adjustments. For instance, if there is a higher opt-out rate than earlier forecast, he may have to review the rules limiting early access to funds. This all comes amid more warnings from experts that there is inadequate protection against misselling. One frequent theme is the need for higher standards for consumer education.
Also, the Financial Reporting Council has determined that FTSE 100 firms have been too slow to comply with the Corporate Governance Code (IH 06/09/10) provisions on boardroom diversity, so it has amended the code to require annual status reports. The FRC was careful to avoid any mention of quotas but will expect the reports to show "measurable" progress. The first report will cover plan years starting on or after 1 Oct 2012, but affected companies are urged to start sooner. The amendments came on the heels of the Cranfield School of Management progress report on board diversity, Women on Boards, a follow-up to the Davies Report from last February (IH 03/02/11), which also occasioned comments about picking up the pace from the Prime Minister and other cabinet members.
Meanwhile, the Pensions Bill (IH 10/12/11) entered its third reading. After the submission of a late-stage amendment that proposed negating the accelerated retirement age hike for women, the administration offered its own compromise amendment that would defer the ultimate rise to age 66 for both women and men from April 2020 to October 2020, shaving six months from the two-year acceleration. Additional late amendments include an expansion of protection from excess administrative charges and a more precise definition of "money purchase plan". If any amendments are adopted, the House of Lords will have to hold a final vote on the bill.
In addition, the Court of Appeal has delivered a decision confirming the Pensions Regulator’s (TPR) right to issue Financial Support Directions (FSD) in two high-profile bankruptcies (IH 12/22/10) involving multinationals. The case is expected to move on to the Supreme Court and legislation will probably be necessary to clarify TPR’s extraterritorial reach and the status of a defined benefit scheme among creditors of an insolvent company.
ICT work permit relief
Foreign executives and skilled workers who are posted in Canada as intra-company transfers (ICT) must obtain work permits, which are good for five to seven years, and they must wait a year to renew an expired permit. Citizenship and Immigration Canada's Operational Bulletin 346 now credits ("recaptures") days spent outside of Canada toward extension of the work permit. This is particularly welcome news to the many US-based executives who are posted in both the US and Canada, the latter under ICT status. The recapture arrangement was already in place for Canadian ICTs in the US.
Trinidad & Tobago
Social security measures in 2012 Budget
IBFD, Jamaica Gleaner
National Budget 2012 features a handful of social security reform measures:
- The insurable monthly income would rise from TTD8,300 to TTD10,000 (US$1,558.26) per month.
- A simplified benefit formula would set the pension at 1% of final salary per year of contributions. This would be credited on pay of up to TTD10,000 per month and would come into effect for fiscal 2012.
- The minimum National Insurance pension would rise to TTD3,000 during fiscal 2012.
- Penalties and interest will be waived on all employer contributions due before 10 Oct 2011 that are paid by 30 Jun 2012.
Congress approves FTAs
LTN, Tax Analysts, CSM
After four years of delays, Congress cobbled a deal together and quickly passed the Free Trade Agreements (FTA) with Korea, Colombia and Panama (IH 10/12/11). The other part of the deal, HR 2832, will revive and extend the Trade Adjustment Assistance and Health Coverage Tax Credit schemes for workers displaced by globalization. Part of the delay with the three FTAs was uncertainty over whether employment law reforms in Colombia and Panama met the agreements’ standards for adequate protection to worker rights. Some stakeholders are still contesting that.
Social security breaks for key sectors
The government is giving several key exporting industries a major break on social security contributions for the year commencing 1 Dec 2011. The 37.3% employer levy will be nearly halved to 18.8% for the furniture, clothing and footwear sectors. Technology and software will fare nearly as well with a 19.8% contribution rate.
AFP contribution hike, AVC mulled
La Tercera, BNamericas
The Labor Minister has advised the press that she is looking into options for keeping the retirement income generated by AFP private pension funds adequate as the economy is going through a rough stretch and longevity gains continue. A rise in the 10% mandatory contribution is under consideration. The ministry is also looking into a voluntary group contribution arrangement with both workers and employers invited to top up the statutory levy.
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