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International Headlines - 12 October 2011

Written by: Patrick Sweeney


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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: Tax developments
Canada: 2011 Budget tax bill
Denmark: New government’s coalition agreement
Italy: Company-level collective agreements
Malaysia: Employment law amendment package re-surfaces; Private retirement scheme outlined
Russia: "Eurasian Union"
UK: Employment law "red tape" initiative; Quantitative easing fallout





Minimum, maximum wage
The Nation, Nairobi Star

The Medical Services Minister has expressed confidence that the Cabinet and Parliament will pass his comprehensive new National Social Health Scheme legislation (IH 09/09/10) in time for implementation by the end of this year. Employer contributions are once again among the funding sources for a universal health system that at one point was to be solely financed by the small minority of workers in the formal sector. Decentralized administration and improvements in infrastructure – including medical training programs – would be among the hallmarks of this program.


South Africa

Update on omnibus tax bill
IOL, Business Day, Mondaq

The Treasury has issued a formal response to the consultation on its omnibus tax legislation (IH 06/08/11), now named the Tax Administration Bill. A revision of the bill is expected to reach Parliament by the end of this month. Measures currently in the spotlight include an amendment that would make employer-paid insurance premiums a taxable fringe benefit for employees. There would be an exemption for people age 65 and up. Seniors would also be able to deduct any unreimbursable medical expenses they incur. If passed, the law is slated to take effect on 1 Mar 2012.



Retirement age, minimum wage hike proposals
Times of Zambia, MENA.FN, Lusaka Times

The new President plans to quickly raise the retirement age from 55 to 65. Some critics have pointed out that life expectancy now stands at 46 for men and 50 for women. Many stakeholders are supportive, though, provided that the retirement deferral translates into a more robust pension, maybe even the retiree medical scheme that was drawn up but never implemented.


Also, the statutory minimum wage has risen rapidly (IH 01/26/11), but at K450,000 (US$93.32) per month it is still well below subsistence level. The President and the unions have called for urgent action to review it. The Zambia Federation of Employers (ZFE) wants to hold tripartite negotiations on a sector-based minimum wage with the Zambian Congress of Trade Unions (ZCTU) and the government.




Tax developments; Student hours ruling
The Australian, Tax Analysts, AFR

The Treasury has had a particularly busy week:



Also, Fair Work Australia has delivered a decision affirming an earlier ruling that allowed students to work shifts as short as 90 minutes (IH 06/29/11). Fearing that more flexible student hours will cost adults jobs, the Shop, Distributive and Allied Employees Association plans to appeal the decision in federal court.



Clarification on social security contributions for foreign workers

Greta Mikelonis, of Mercer's Shanghai office, brought up a couple of important points that hadn’t turned up in press accounts of the social security levy for foreigners that takes effect this Saturday, 15 October (IH 09/22/11). The local autonomy in social insurance plans (IH 08/17/11) extends to the oft-cited contribution formula of 37% for employers and 11% for workers. There are local variations on this. Also, the ceiling on income subject to the tax (significantly lower that a typical expat salary) and the maximum monthly benefit vary by city.



Warning against claim rejections; Infrastructure investment expansion mulled
Economic Times Moneylife, IPN

The Insurance Regulatory and Development Authority (IRDA) has sent an advisory circular to all health insurers flagging disturbing patterns of bad faith such as delaying claim reimbursement and rejecting customer claims on technicalities like the promptness of filing. The regulator is expected to follow up with mandatory contract language stating that a filing delay that couldn’t be helped is not grounds for rejection.


Also, the Department of Economic Affairs (DEA) has Finance Ministry support for a plan to significantly broaden the very limited infrastructure investment options for insurance and pension funds. The Pension Fund Regulatory and Development Authority (PFRDA) and the Insurance Regulatory and Development Authority (IRDA) have been tasked with drawing up rules for raising the infrastructure investment threshold and lowering the minimum debt rating for acceptable infrastructure investment, but there has been some resistance in the IRDA.



Trachtenberg report package stalled
Tax Analysts, Arutz Sheva, Jewish Chronicle

The Trachtenberg Committee’s bundle of proposals for economic reform (IH 10/05/11) may be dead on arrival. Many factions of stakeholders have had negative reactions and a Cabinet vote was postponed last week because it would not have been approved in its present form.



Pension reform proposal; Minimum wage dispute
Daily Star, MENA, Iloubnan.info

The current administration has pledged to implement a major pension reform program, but pension reform has not gained any traction (IH 08/11/04) since the government started a series of studies in 2000. The Lebanese Businessmen Association (RDCL) has now publicized a blueprint for gradually replacing the National Social Security Fund’s (NSSF) end-of-service benefit with a classic three-pillar model:


  • The first pillar would aim to replace 40% of income for workers earning up to six times the minimum wage and contributing for 30 years. A longer contribution period would raise the replacement ratio.
  • The second pillar would have a minimum guarantee and a solidarity component would boost the savings of low-income workers with part of the contribution from high-wage earners. This scheme would be mandatory for those under age 35, optional for those 35-55.
  • A voluntary third pillar scheme would pool employer and employee contributions in a complementary retirement savings fund.


Meanwhile, the unions will stage a national strike today if the government refuses to raise the monthly minimum wage from LL500,000 to LL1.2million (US$796.81). The government was nearing an agreement on LL750,000, but its Price Index Committee has now proposed LL600,000.



Employment law amendment package resurfaces; Private retirement scheme outlined; 2012 Budget; Union membership for foreign workers
Bernama, Straits Times, Sun Daily

DR 25/2010 Employment (Amendment) Bill 2010 (IH 07/21/10) had its first reading in July 2010 then was withdrawn from Parliament last October after strong resistance from the MTUC (Malaysian Trade Union Congress) over unlimited fixed-term contract renewals and one-year probations for new hires. The bill is being re-introduced this month for a second reading and the MTUC is ensuring that its return will not be low-profile. A prominent theme in the current campaign against the bill is unequal pay, benefits and workplace rights for contract workers and part-timers.


Also, the Securities Commission has posted its Capital Market Masterplan 2, one highlight of which is an amendment to the Capital Markets and Services Act 2007 (CMSA) that sets the legislative framework to the much-anticipated private retirement scheme (PRS, IH 07/27/11). PRS is a voluntary, supplemental retirement scheme that strives for maximum flexibility in contribution and investment options. These include but are not limited to employer-sponsored retirement schemes. The tax deduction on total employer contributions to PRS, EPF (Employees’ Provident Fund) and other approved retirement schemes is capped at 19% of salary. A menu of subfunds would offer a range of investment risk profiles. There are provisions on scheme administration, governance and oversight. The date of entry into force has not yet been set.


In addition, the Treasury has released the 2012 Budget (Malay only), one of the few "feel good" budgets amidst all this season’s austerity packages:


  • The tax regime for PRS is addressed here.
  • The employer contribution to the EPF would rise from 12% to 13% for members earning RM5,000 or less.
  • Registration fees for government hospitals and clinics will be waived for citizens ages 60 and up.
  • There will be double deductions for employer-sponsored internship and scholarship programs.
  • A fund has been created for management-track training for women.


Meanwhile, the Human Resources Minister is positively disposed toward proposals before his ministry that would allow foreign workers to join trade unions. He has consulted with the MTUC on this. MTUC has called for a freeze on bringing in new foreign workers but backs equal rights for those already in Malaysia. One complication with allowing foreign workers to join unions is that existing employment contracts that ban union membership would have to be revised.


Fewer exemptions from re-employment rules; Work pass fee hike; CPF interest rate renewal
Today, Straits Times, Jakarta Post

The Government Gazette posted the revised Retirement and Re-employment Act: Tripartite Guidelines on Re-employment of Older Employees 2011 on 1 October. It pares the list of categories and occupations exempt from the re-employment rules down from 26 to 13. Those still on the list include part-timers averaging less than 20 hours a week, employees on short fixed-term contracts and foreign staff on work passes. The new list takes effect on 1 Jan 2012.


Also, the Ministry of Manpower announced that work pass administrative fees – unchanged since 2005 and even then heavily subsidized – are being raised to reflect their true cost. Effective 1 Dec 2011:


  • The Employment Pass for foreign professional will quadruple to S$120 (US$92.10).
  • The S Pass for skilled foreign workers will rise from S$30 to S$70.
  • Application fees for all passes will double to S$20.
  • The S$20 subsidy for online application or renewal of work permits will end.


In addition, the Central Provident Fund Board announced a reprieve for the transitional minimum interest rate for funds in the Special, Medisave and Retirement Account (SMRA). The 4% rate, meant to ease participants in to a formula that would reflect changes in the yield of 10-year government securities, was initially meant to expire in December 2009. It will now run through 31 Dec 2012.



NHI premiums for seniors
China Post

The Department of Health (DOH) has proposed a contribution formula for pensioners for the National Health Insurance program under the 2G health reform (IH 01/06/11):


  • Pensioners with children would be expected to join the program as dependents of their children.
  • Children with particularly high or low incomes would see that reflected in the premiums for their aged parents. Those pensioners with children earning over NT$100,000 (US$3,281) per month would pay double the standard dependent premium.
  • The childless would pay the same premium as the unemployed.


Incidentally, one proposal before the DOH would end the option of suspending NHI premiums while out of the country for at least six months.



New administration’s agenda
AIR, Bangkok Post, The Nation

The new administration (IH 07/20/11) already has a handful of significant and unwieldy reforms underway:


  • The jump to a 300baht (US$9.90) daily minimum wage is facing stiff resistance from employers. Social partners will meet to discuss its implementation next Monday, 16 October. An introduction phased over two years with only the Bangkok region meeting the January 2012 deadline is likely as is a set of subsidies and loans to buffer the impact on small business.
  • The Finance Ministry is preparing a major tax reform package that could end tax deductions on life insurance premiums and retirement mutual funds.
  • The discredited ฿30 universal health scheme (IH 04/12/06) will soon be resurrected – at least in name – with very odd timing, given the health system funding problems (IH 03/09/11). Details are not yet fleshed out, but the controversial 30baht (US$0.97 ) figure will reportedly now be a nominal co-payment for clinic visits rather than a member premium.



Dubai mandatory health insurance postponed
The National, Gulf News, AME

The Dubai Health Authority (DHA) announced that the mandatory health insurance scheme for all workers in Dubai, originally set to debut in 2009 (IH 06/10/09), is now scheduled to take effect in 2013. A DHA official said that the models are fully developed, but extensive groundwork will be necessary.



Minimum wage limits
Thai News

The National Assembly Standing Committee for Social Affairs has concluded that the minimum wage should be limited to those sectors and occupations where there is a danger of low-skilled workers otherwise being exploited. The committee has concluded that a statutory minimum wage may keep salaries artificially low in some sectors where market forces would more amply reward skills and productivity.




Guidance on tax equalization in a secondment

Last month, the Finance Ministry posted a circular (French only) on the tax regime for the tax equalization arrangements of Belgian employees temporarily seconded abroad. The hypothetical ("hypo") tax, duplicating the tax treatment that the employee would have if working at home, is deductible from taxable income the year that it is withheld. When the employer sometimes has to pay foreign income tax to make up the difference, that is technically a benefit in kind but it is not levied on the worker.



See Russia



New government’s coalition agreement
EU Observer, Copenhagen Post, AFP

The new government (IH 09/28/11) has posted its coalition agreement (Danish only), which does include some concrete positions among the general statements:


  • The previous government’s policies on raising the retirement age and ending early retirement schemes (IH 09/22/11) will be maintained. The unions are planning a constitutional challenge to the latter.
  • Private health insurance contributions are slated to lose their tax deduction.
  • The Schengen-defying border control program (IH 07/27/11) will be abandoned.
  • The lead partner’s proposal to increase the standard workday by 12 minutes did not make the final cut. The main union federations, LO and FTF, have nonetheless advised their members that longer workweeks are probably inevitable.
  • There will be a tripartite initiative to boost the skilled workforce to meet anticipated needs. This will include incentives for qualified foreign workers.
  • To ensure against social dumping, no Danish workplace would be exempt from Danish standards on wages and employment conditions.
  • People who exhaust their unemployment benefits would be able to renew the benefits for up to six months.



Pushback on fund grab
ERR News

The heads of the Unemployment Insurance Fund and the Health Insurance Fund have come out against the 2012 Budget proposal to merge their funds with general revenue (IH 09/28/11). The unions have started a petition to block this move.


Globalisation Adjustment Fund refinements; ECOFIN economic governance agreement

The European Commission has posted draft legislation for its 2014-2020 cohesion policy. The next phase of the Globalisation Adjustment Fund (GAF) would extend its support for displaced workers to temporary staff and owners of small enterprises. Along with relief for job losses attributed to globalization, there would be support for workers affected by an "unexpected major crisis." Administrative reforms would ensure faster response to GAF applications.


Also, the European Council finance ministers (ECOFIN) have granted final approval to the "six-pack" economic governance reform legislation (IH 09/22/11). It will install a more federal mechanism for contending with economic crisis in an individual eurozone member state. This could include imposing social security and tax reforms. The date of entry into force is not yet set, but it will be no later than 1 Jan 2012.



National income agreement stalls
YLE, Helsingin Sanomat

Social partners were unable to reach agreement on national-level wage negotiations, so the talks were ended, devolving collective bargaining to a sectoral leave. Participants mentioned that they had reached some agreements on improving paternal leave, unemployment insurance and the status of temporary workers, but there was no indication that they would be salvaged. At press time, there is late word that the negotiations may resume.


Draft labour code developments; Health reform measures
MTI, Politics.hu

The administration is preparing a major labour reform package (IH 08/31/11) for its forthcoming submission to Parliament despite union insistence that there be public tripartite hearings on the controversial legislation. A European Commission panel has agreed to review several provisions in the legislation that the unions have flagged as running counter to EU law.


Also, Parliament’s Sustainable Development Council has discussed approaches to more "sustainable" financing for the public health system. Favored solutions include higher employer and employee contributions, transfer of some hospital roles to outpatient clinics, hospital coordination for for greater purchasing power in negotiations with drug companies and more lifestyle change initiatives following early success of the "chips tax" (IH 08/17/11).



Budget bill would trim pension contributions

012 Budget legislation due here soon includes a measure to halve the deductible premium for voluntary pension insurance to 2% of total income. Another would count pension funds and insurance companies among the financial institutions that would see a supplemental 10.5% employer tax on total payroll.


Pension levy diversion charge
Irish Times, Xinhua, Irish Times, IPE

The temporary pension levy (IH 09/28/11) faces its most serious attacks yet in detailed opposition allegations that part of the 0.6% tax on pension assets was shifted from job programs to general debt relief. The Deputy Prime Minister denies this charge, but an opposition leader has now called for legislation on renewing pensioners who’ve paid the levy "under false pretences".



Company-level collective agreements
Elexica, Fedee

There is debate underway in Parliament on a measure that was passed by decree but needs Parliament’s approval this month to become law. It would allow individual companies alternatives to both national-level collective agreements and some provisions of labor law (IH 08/17/11). The workers and management would have to agree on negotiating a company-level agreement. Those employment law measures that could be subject to negotiation reportedly include unfair dismissal, working hours, employee privacy protection and the limits on fixed-term contracts.



Pension indexation delay
Baltic Daily, Baltic Course, BBD

A prospective three-party coalition government is taking a while to gel and a document shared with opposition parties revealed that its goal for resuming indexation of pensions (IH 09/28/11) has been pushed back to 2013.



Important ruling on benefit statement language

A district court judge recently issued a landmark ruling that fined an employer for producing a misleading and incomprehensible benefit statement. If a misleading statement were clearly wrong and the pensioner did not follow up on it, he would have been at fault. But in this case, the statement’s language was opaque and the pensioner had been assured in conversation with scheme staff that their calculations were correct, so he bought a house that it turns out he could not afford. The court ruled that the scheme must now pay him the mistaken amount, €40,000 a year (up from €22,000), for life.



ECJ ruling on pension tax regime
Tax Analysts, IBFD

The European Court of Justice has delivered a verdict in case C-493/09, confirming the Advocate General’s finding (IH 06/02/11) that Portugal’s tax regime for foreign pensions is in violation of the rules on free movement of capital. Dividends paid to a nonresident pension fund are taxed at 10-20% while those paid to a Portuguese pension fund are exempt from corporate tax.



"Eurasian Union"
Moscow Times, EU Observer, Euractiv

The Prime Minister, who’s running for President in the March 2012 election, wrote an op-ed in the daily newspaper Izvestia proposing a "Eurasian Union," a "powerful, supranational union" loosely modeled after the European Union and painstakingly differentiated from the old Soviet Union. Post-Soviet alliances including the Commonwealth of Independent States (CIS) and a new Customs Union between Russia, Belarus and Kazakhstan would join in a close integration that could function as an equal partner with the EU in a "common economic space." There would be:


  • a Schengen-like removal of internal border controls;
  • modification of immigration policy for free movement of workers; and
  • "cooperation … in the regulation of labor markets."


While this is one campaign theme for one Russian presidential candidate, the debate has spilled over Russia’s borders where prospective member states are wary of the candidate’s ambition, but intrigued by the benefits that would accrue to members.



Pension freeze measure shelved
STA, Reuters

Last week, the Cabinet passed an austerity package including measures that would have kept pensions and other social benefits frozen in 2012. The government tried to get the bill expedited through Parliament ahead of the legislative body’s 21 October dissolution, but it has been kept off the agenda for the final days. Deferring the austerity bill is likely to affect the country’s credit rating.



Health insurer website

The Federal Office of Public Health (FOPH) has unveiled a website (French only) featuring a premium calculator to help make the health insurance sector more competitive. Its introduction coincides with that of a new FOPH FAQ on the scope of the mandate to take out health insurance.



Labour Code update
Ukrainian News

The Social Policy Minister said that social partners have not resolved all of their differences over the draft Labour Code (IH 11/24/10), but that passage by the end of this year is imperative. He will attempt to convince them – and legislators – to let it become law and continue tinkering with it later.



Employment law "red tape" initiative; Quantitative easing fallout; Pensions Bill final vote
Financial Times, The Guardian, IPE

The Department for Business Innovation & Skills (BIS) has launched a three-week Red Tape Challenge, targeting 160 employment-related laws and regulations in a sidebar to the five-year Employment Law Review. As an example of the kind of changes the administration has in mind, the Chancellor has proposed that the qualifying period for unfair dismissal claims be doubled to two years, effective 6 Apr 2012. He said that workers would from that point pay a fee of up to £250 to initiate an employment tribunal case and £1,000 if there is a hearing. This was characterized as a deposit for good faith claimants, refundable if they succeed. Consultations expected to start next month will address some sticking points such as the salary level below which these fees would be waived.


Also, the pensions industry has raised alarms over the impact of quantitative easing on scheme funding. The Bank of England’s announcement that it would purchase more financial assets to help keep interest rates down will have defined benefit schemes reporting significantly larger deficits. The National Association of Pension Funds (NAPF) will meet with the Pensions Regulator (TPR) to discuss the implications of this move for the sector.


In addition, the Pensions Bill faces its third and final reading stage in the House of Commons next Tuesday, 18 October. An amendment proposed earlier this month would abandon the controversial acceleration of the retirement age hike for women (IH 06/22/11).


North America


2011 Budget tax bill
National Post, Tax Analysts, IBFD

The Finance Ministry has introduced Keeping Canada’s Economy and Jobs Growing Act, a set of measures reflecting proposals in the 2011 Budget (IH 06/15/11). Among the highlights:


  • There would be no mandatory retirement age in federally regulated companies.
  • The Wage Earner Protection Program would provide broader protection of worker wages in the event of an employer bankruptcy.
  • Workers who are involuntarily terminated when they are eligible for a pension would not lose their entitlement to severance pay.
  • Payments under an employer-funded disability plan would be included in the salary subject to Canada Pension Plan contributions.
  • Some loopholes in retirement saving schemes would be plugged.
  • Small employers would get a temporary subsidy on employment insurance premiums.
  • There would be a new C$2,000 Family Caregiver Tax Credit.


The bill is now before Parliament where the first reading was held on 4 October.



Afores transfers, promotion
FIAP, El Universal, SIPSE

Pension regulator CONSAR recently conducted a study of AFORES retirement account participation that found less than 1% of members making voluntary contributions. AMAFORES, the AFORES association, has responded with a publicity campaign (Spanish only ) on the value of saving for retirement. The National System of Saving for Retirement (NOCs) believes that the sector would benefit from following CONSAR regulations more consistently. NOCs has noticed a high incidence of workers being illegally transferred to different AFOREs without consent and has set out to educate affiliates about their rights.



Draft FATCA reporting instructions; Various
Tax Analysts, National Underwriter, DRE

While stakeholders continue to consider the implications of the Foreign Account Tax Compliance Act (FATCA) for participants in non-US retirement schemes (IH 07/27/11), the Internal Revenue Service (IRS) has offered some limited guidance with the illustrations in Draft Instructions for Form 8938. There has been much commentary lately about affected financial institutions not being up to speed on FATCA, but much remains unresolved. The link to the instructions on the FATCA resource pages warns that the draft instructions regard compliance with the 6038D regulations, which are "not yet available."


In other news:


  • The opposition Republican Party’s initial response to the President's economic recovery and job market reform legislation (IH 09/22/11) was to declare it dead in the water. The addition of a proposal to finance these measures with a 5.6% tax on anyone earning over $1 million per year gained it some traction but not enough for a filibuster-proof majority. The bill now faces revision and some of the less divisive provisions may be pulled out for stand-alone votes.
  • The trade pacts with Colombia, Panama and Korea, long held up by opposition resistance to the linked measures supporting further Trade Adjustment Assistance (TAA) for workers displaced by globalization, are now picking up some bipartisan momentum and could see quick passage.
  • The National Labor Relations Board (NLRB) has deferred the deadline for mandatory posting of notices advising employees of their right to join unions from 14 Nov 2011, to 31 Jan 2012.


Comments or queries may be directed to Patrick Sweeney at +1 212 345 2462. Click here to find your local Mercer office.

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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