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:
China: Developments affecting foreign workers
Denmark: 2012 Budget passed
EU: Guidance on unisex insurance premiums
Hong Kong: Consultation on MPF early and phased withdrawals
Italy: Austerity decree clears Parliament
Japan: Tax reform agenda; Social security reform measures
Malaysia: Employer EPF contributions rise for low earners
BBC, TNA, People’s Daily
IBFD, Tax Analysts
The new prime minister announced an urgent measure to raise the minimum monthly pension from150 to 200 Egyptian pounds (US$33). The compromise monthly minimum wage (IH 10/05/11) is still being contested and is reported to be in enforcement limbo.
Pension fund investment bill
With the Retirement Benefits Authority (IH 05/04/11) due to launch this year, the Capital Markets Authority is hailing draft legislation now before Parliament that would give private pension funds considerable leeway in developing an investment policy. The addition of securities, real estate and private equities to the funds' investment options would stand them in sharp contrast to the National Social Security Fund (NSSF), which is limited to conservative investments.
Consultation on Stronger Super measures; Fair Work Act review
Newsflash, Superannuation Alert
The Treasury has requested submissions on Exposure Draft – Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Bill 2012. The exposure draft is billed as the second tranche of legislation supporting the administration’s MySuper reforms (IH 11/16/11). High-profile provisions call for:
- Establishing the power of APRA (Australian Prudential Regulation Authority) to issue prudential standards for the superannuation sector
- Increasing the statutory duties of trustees, most notably to include an annual check on the adequacy of MySuper plan assets
- Introducing more extensive trustee covenants
The consultation closes on 13 Jan 2012.
Also, the workplace relations minister announced the composition of the panel conducting a statutory review of the Fair Work Act and the terms of reference for the review. The panel will examine how the new legal framework has achieved its goals, consider possible unintended consequences and target specific problem areas like dispute resolution and dismissal protection. The review will heavily feature stakeholder consultation and will conclude on 31 May 2012.
Developments affecting foreign workers
China Daily, LA Times, Xinhua
A flurry of interesting stories on the status of foreign workers appeared in the closing days of 2011:
- Companies that employ foreign workers still complain of insufficient guidance on complying with the new expat social insurance rules (IH 12/01/11). An unnamed social security official has now given assurances that foreign workers who become entitled to a state pension will be allowed to retire in China. It is still not clear whether work visa modifications will allow expats to stay in China and collect unemployment benefits when they lose jobs.
- The State Council has submitted legislation to the National People’s Congress that would raise the bar for foreign worker access to the Chinese job market. Unskilled workers would be barred unless a specific labor shortage were being targeted while a program modeled on the US green card system would make for a more hospitable environment – including the prospect of permanent residency – for skilled foreign workers.
- There are also measures on enforcing work permit requirements and requiring all foreign workers in China for over six months to get fingerprinted at the local police station. A requirement that all foreign workers submit to HIV testing was quietly dropped last year,
Consultation on MPF early and phased withdrawals
South China Morning Post
The Mandatory Provident Fund Schemes Authority has issued Consultation Paper: Withdrawal of MPF Benefits to get input on its investigation of possible benefit payment alternatives (IH 07/27/11). Terminal illness is a strong candidate for grounds for early withdrawal. The paper also considers a “phased withdrawal” alternative to the lump sum benefit now delivered upon retirement. The implementing legislation wouldn’t necessarily set any limits on the amounts or frequency of these multiple withdrawals. Comments are invited through 31 Mar 2012.
PFRDA bill stalls; Various
Times of India, Business Line, Business Standard
The Pension Fund Regulatory and Development Authority Bill (IH 12/21/11) appeared to have enough votes to clear Parliament, but the Trinamool Congress, a strategic ally of the administration, made a direct appeal to the prime minister to keep the “anti-people” legislation out of the current legislative session. The Congress' concern was that investment risk exposure was being shifted onto workers. The party also opposes foreign direct investment in the pension sector and flagged some ambiguous provisions. A revised version of the bill is expected during the Budget Session in February.
In other news:
- The Employees’ Provident Fund Organisation (EPFO) was unable to reach a decision last month on whether to adjust the guaranteed interest rate (IH 12/14/11). It will leave the decision to the Finance Ministry, which has been presented with a trio of options ranging from the current 9.5% to an investment advisory panel’s recommendation for 8.25%.
- The EPFO has revised Special Provisions for International Workers (FAQ) to reflect a fast-changing environment, including rapid progress on many international social security agreements.
- The Insurance Regulatory and Development Authority (IRDA) has offered further details of the new rules for health insurance carriers (IH 10/12/11). There would be standard policy language on the scope of coverage, including any exclusions, and the handling of grievance claims. The draft regulations are expected in April.
Compromise on womens’ retirement age
Last month, facing heavy opposition in the Knesset’s Labor, Welfare and Health Committee, the Ministry of Finance backed down on a proposal to raise the retirement age for women from 62 to 64, effective 1 Jan 2012 (IH 12/01/11). The ministry now plans to complete the two-year increase in 2017. The revised proposal will still be competing with a bill that calls for blocking any retirement age hikes for women.
Tax reform agenda; Social security reform measures
IBFD, Nikkei Report, Jiji Press
The Cabinet has approved a package of fiscal 2012 tax reform measures, which should be fleshed out as draft legislation and ministerial ordinances over the next few months. Among the highlights:
- There would be cutbacks on the deductibility of work-related training expenses but the definition of “specific expenses” would expand to include costs related to securing qualifications related to one’s occupation.
- The formula for taxation of a director’s retirement income (total retirement allowances minus retirement income deduction x 50%) would no longer qualify for the 50% reduction if a director has served five or fewer years.
- There would be new reporting requirements for disclosing exercise of stock options granted by the Japanese subsidiary of a foreign company.
All of these measures are intended to take effect in 2013.
The administration’s social security reform report (IH 12/01/11) missed its deadline for release by the end of last month and is now tentatively set for release tomorrow. More details have been reported in the press:
- The consumption tax hike is inching forward with the 5% levy now due to hit 8% in April 2014 and 10% in October 2015.
- The bridging bond that will serve as a down payment on consumption tax revenues will be introduced in April 2012.
- New medical co-payments for people ages 70-74 and a pension premium hike for people above a certain income threshold were included in some previews but reportedly will not make the final cut.
- Tax deduction cuts on large pensions and for people who continue to work while they collect their pensions have not been ruled out.
- A 2003 law that halved the 20% capital gains tax will be allowed to lapse at the end of 2013 to help fund social security.
The legislation should reach the Diet in March.
Employer EPF contributions rise for low earners; Guidance on tax regime for gratuities
Bernama, Business Times, Tax Analysts
The Employees Provident Fund (EPF) has issued a press release on a 2012 Budget (IH 10/12/11) measure that passed in time to go into effect on 1 Jan 2012. The statutory employer contribution for workers earning up to RM5,000 (US$1,594.90) per month has risen from 12% to 13%. The contribution for people age 55 and up in that salary band rose from 6% to 6.5%. Also, Inland Revenue Board Malaysia’s Public Ruling No. 10/2011 provides guidance on the tax regimes for gratuity payments under a variety of circumstances. In some of those cases where the payment does not qualify for a tax exemption, there are directions on how the amount is assessed.
OFW Philhealth premiums doubled
A Philhealth press release details how the transition to Universal Health Care (UHC) (IH 12/07/11) entails a huge increase in the annual premium for overseas foreign workers (OFWs). Freshly increased from P900 (US$20.55) to P1,200 last week, the premium is set to double to P2,400 on 1 Jul 2012. OFW organizations and a prominent ruling party legislator are now among those calling for public hearings on UHC in general and the OFW premium hike in particular.
Unemployment benefit program update
Arabian Business, Business Week, Saudi Gazette
The Hafiz unemployment allowance program that was to have launched last November (IH 10/19/11) was postponed again and is now getting a very shaky start this month. Saudi nationals aged 20 to 35 may now collect a monthly unemployment benefit of SR2,000 (US$530) for up to a year. Analysts charge that the Nitaqat “Saudization” program (IH 10/26/11) could suffer as unskilled young Saudis won’t have a strong incentive to find work.
Medisave minimum rises
Straits Times, Business Times
The Central Provident Fund Board’s quarterly press release on the guaranteed interest rate, which remains 4% through 31 Mar 2012 for Special and Medisave accounts, notes that the Medisave Required Amount (MRA) increased from $27,500 to $32,000 (US$24,825), effective 1 Jan 2012. The MRA is the amount deemed adequate to meet post-retirement health care needs and it is a prerequisite for a CPF withdrawal.
Social security contribution, benefit hikes
Effective 1 Jan 2012, the 3% employee social security contribution will remain in effect for monthly pensionable income up to AMD2million (US$5,185) but will rise to 8% for income over that amount. This coincides with hefty benefit increases. The basic pension has risen from AMD10,000 to AMD13,000 while the average retirement pension is up from AMD28,700 to AMD31,300 (US$80).
Parliament approves 2012 Budget
Agence Belga, IBFD, People’s Daily
The 2012 Budget (IH 12/07/11) cleared Parliament in the closing days of 2011 and was gazetted (French only) on 30 Dec 2011. Initial coverage confirms that measures raising the early retirement age from 60 to 62 and raising the minimum contribution period for normal retirement at age 65 from 35 years to 40 will come into effect on 1 Jan 2013.
2012 Budget passed
Esmerk, GIDA, Planet Labor
The 2012 Budget (IH 11/16/11) bill that cleared Parliament last month introduced a number of important tax and pension reforms that unless otherwise indicated went into effect on 1 Jan 2012:
- The retirement age will gradually climb to 69, reaching 67 by 2022.
- The efterlon pre-funded early retirement scheme will be closed down with participants free to take their holdings as a tax-free lump sum between 2 Apr and 1 Oct 2012.
- In the final version of the law, the tax-exempt ceiling on annual contributions to annuity pension schemes is halved to DKK50,000 (US$8,704).
- Employer-provided supplemental health insurance has lost its tax exemption.
- Payments in company stock will now be regarded as taxable income and employee stock ownership schemes no longer get a tax break.
No limit on tax-free reimbursement of accommodation expenses
An Income Tax Act amendment that went into effect on 1 Jan 2012 completely removes the daily caps on tax exemption for domestic and foreign business travel accommodation expenses (IH 08/31/11). Very low thresholds had increasingly left business travelers paying fringe benefits tax (FBT) on a large portion of the going rate for hotel rooms.
Guidance on unisex insurance premiums
A landmark decision on gender neutral insurance premiums (IH 03/02/11) gave insurers until 21 Dec 2012 to remove sex-related factors from all premiums and benefits. The European Commission has now adopted guidelines for compliance with the ruling. Following consultation with the insurance industry and other stakeholders, the document notes some exemptions, most importantly that the ruling does not apply to calculation of annuities under an occupational pension. It makes clear, though, that the common member-state derogations for insurance contracts under the equal treatment legislation will no longer be allowed after December 21.
Recent stock compensation rulings
IBFD, Totally Expat
The Supreme Administrative Court ( KHO) delivered a pair of notable rulings on stock compensation late last year. In the first case (2011/3521) (Finnish only), an expatriate worker with a Finnish company who qualified for a special expatriate income tax regime was awarded stock options while posted in Singapore and exercised them while working in Finland. The regime only applies for employment income. At issue was whether the earnings from exercise of the stock options qualified as employment income for purposes of this regime. KHO determined that it did.
In the other case (2011/91) (Finnish only), KHO denied a request to deviate from the rules on valuing share awards for tax purposes. An employee had received three different share awards and each had to be held for a two-year restriction period. All three lost value during those periods, two of them sharply. KHO clarified the conflicting case law on this issue and ruled that the taxable benefit was the value of the stock at the time it was awarded.
Professional Qualifications Assessment Act
Totally Expat, Fragomen
The Ministry of Education hailed last month's passage of the Professional Qualifications Assessment Act, which amends numerous laws to standardize and streamline assessment of the qualifications of foreign professionals in over 350 professions (IH 03/30/11). Some of the equivalency testing for expats had been found to be discriminatory or otherwise faulty. Under the new law, professionals can apply for recognition of their foreign qualifications regardless of their citizenship or where the qualification was acquired. Applications must be reviewed within three months of submission. The law will take effect in spring 2012.
Second-pillar challenge status
MTI, Dow Jones
In its final session before it lost authority to deliver rulings on the constitutionality of legislation, the Constitutional Court failed to address the administration’s permanent redirection of second-pillar pension contributions (IH 12/21/11). Mszp, the main opposition party, will now present a case to the European Court of Human Rights.
Industrial Relations Bill; USC guidance; HSE governance measure
Tax Analysts, BFDN, Irish Times
The Minister for Jobs, Enterprise and Innovation introduced Industrial Relations (Amendment) (No.3) Bill 2011, legislation to give added flexibility to existing wage-setting arrangements (IH 06/02/11):
- Curbs on the power of Joint Labour Committees (JLCs) would include drawing up a statutory code of practice for social partner negotiation of Sunday premium rates.
- JLCs would have to consider a menu of “economic and industrial relations factors” in producing an ERO (Employment Regulation Order).
- Employers facing financial hardship would be able to apply to the Labour Court for exemptions from EROs and REAs (Registered Employment Agreements).
The Irish Revenue has issued a trio of documents to clarify the tax and USC (universal social charge) status of expatriate workers in certain special circumstances:
- Revenue eBrief No. 81/11 explains tax and USC treatment of workers in a few different cross-border scenarios.
- Revenue eBrief No. 82/11 surveys the scope of double taxation relief for Irish workers living and working in non-tax treaty countries.
- Revenue eBrief No. 84/11 clarifies tax and USC issues for non-resident directors of public companies incorporated in Ireland.
Also, the Cabinet has endorsed a sequence of steps for gradually replacing the Health Service Executive (HSE) with a new governance structure as part of a transition to universal health insurance (UHI). The administration aims to draft a bill on the governance shift in the first half of this year and to release a White Paper on a UHI timetable by the end of the year.
Austerity decree clears Parliament
ANSA, AFP, AKI
As expected, the “Save Italy” austerity decree (IH 12/21/11) has won overwhelming approval in the Senate. Among the provisions confirmed to be in the final version (Italian only):
- The normal retirement age for women will rise from 60 to 61 in 2012 and climb to 66 in 2018.
- The minimum contribution period for retiring earlier, now 40 years for both sexes, will rise to 41 years for women and 42 years plus one month for men.
- The freeze on pension indexation for 2012-13 will apply only to pensions greater than €1,400 per month.
- Next year will see a one-shot levy on pensions over €200,000 per year.
- Companies hiring women and youths will pay lower social security premiums for them.
ECJ ruling against pension investment restrictions; Disability insurance contribution hike; 2012 work plan
Warsaw Business Journal; PNB, Poland Today
Poland's 5% overseas investment limit on Open Pension Funds (OFEs) violates article 56 of the European Commission Treaty, the European Court of Justice (ECJ) finds. In Poland, 14 OFEs make up the second pillar of its three-pillar pensions system. Two years ago, the European Commission had referred this issue to the ECJ (IH 06/03/09), arguing that the 5% limit is an "unjustified restriction on the free movement of capital" and could "dissuade or prohibit OFEs from obtaining loans or making investments in other Member States." The ECJ has ruled in Case C-271/09 that the limit breached the rule concerning the free movement of capital between member states, and Poland must now lift the OFE restrictions.
Meanwhile, the president has signed a measure that amends the Social Security Law to raise the employer disability insurance contribution from 4.5% to 6.5%. The employee contribution remains 1.5%. The increase will take effect on 1 Feb 2012.
Also, the prime minister delivered the administration’s 2012 work plan as part of a recent parliamentary statement (Polish only). Legislation due in the first quarter of this year will detail plans to start a gradual rise in the retirement age next year to 67 for both sexes. At a rate of three months per year, men would arrive there in 2020, women in 2040. A measure that could be published as early as this month would change the pension indexation formula from a blend of inflation and wage inflation to just the CPI.
Draft health reform bill
The Health Ministry has posted a press release (Romanian only) advising stakeholders of a brief consultation on the administration’s health reform legislation (IH 08/10/11). Some measures that have captured the press’s imagination include:
- Participating health insurers would offer a basic package of services and have strict disclosure standards. Their administrative fees are set to be capped at 2.8%.
- An insurer and an employer may collaborate on a more comprehensive package or negotiate the terms of an additional voluntary health insurance product. Member contributions to the supplemental plans would be tax deductible up to €300 per year.
- People who have not kept up on their health contributions would have their rights limited. After three months of skipped premiums, they would only receive emergency care and treatment of infectious diseases.
- People on parental leave and pensioners earning less than €172 per month are among the few populations that would be exempt from premiums.
Tax on excess severance pay
Federal Law No. 330-FZ, a new set of amendments to Russia's Tax Code, features a measure that will apply a 13% tax to dismissal compensation of a company’s top directors and chief accountant when it exceeds three months’ salary. The definition of dismissal compensation encompasses severance pay, salary during notice period and any other compensation attributed to the termination. The law took effect on 1 Jan 2012.
High Court ruling against PRPs
Money Marketing, Pensions Age, IPE
The Pensions Regulator (TPR) has hailed a recent High Court ruling that declared Pension Reciprocation Plans (PRPs) – also known as pension unlocking schemes – illegal (IH 12/07/11). Six defined contribution schemes had taken advantage of an increasingly popular loophole in the pension rules to let members of one scheme take out loans from other schemes without the tax penalties they would have incurred by borrowing from their own.
CHT agenda; Royal Assent for jobs bill; PRPP legislation; Banks barred from selling annuities
Law and Tax, CBC, Globe and Mail
A highlight of last month’s meeting of federal, provincial and territorial finance ministers was the administration’s presentation of a new Canadian Health Transfer formula covering the next several years. The transfers would increase by a pre-arranged 6% until 2016-17 when a formula factoring both real GDP and inflation (with a default floor of 3%) would take over. This was sprung on the meeting with little warning and it was made clear that this arrangement would be non-negotiable. Some of the finance ministers and other stakeholders view this as a bad faith response to the problem of medical inflation.
Also, Keeping Canada’s Economy & Jobs Growing Act (IH 10/12/11), legislation incorporating many of the measures in the 2011 Budget has cleared Parliament and received Royal Assent. The final version has not yet been posted, but measures confirmed in the new law include:
- Ending the mandatory retirement age for federally regulated workers
- Expanding eligibility for the Wage Earner Protection Program
- Extending hiring incentives to small enterprises
In addition, some better links have been posted for the administration’s pooled registered pension plan legislation. Bill C-25 Pooled Registered Pension Plans Act was delivered to Parliament on 14 December. On the same day, the Finance Ministry opened a consultation on PRPP-related draft amendments to the Income Tax Act. Responses are welcome through 14 Feb 2012.
Meanwhile, the Finance Minister declared that the administration will soon table legislation barring banks from marketing “annuity-like” products. Banks are generally prohibited from selling insurance products and the insurance sector has raised alarms in recent months over certain banks marketing financial products that mimic life annuities without being subject to insurance sector regulations.
Short reprieve for social security tax cut, unemployment benefit extension
Tax Analysts, CBS, Observer-Dispatch
After several weeks of brinkmanship over it (IH 12/14/11), the Social Security payroll tax cut and the unemployment benefit extension that were set to expire on 31 Dec 2011 will continue through 29 Feb 2012 to allow more time to debate a full year extension. The Internal Revenue Service (IRS) has promised to provide guidance and revised forms to help employers stay in compliance.
Minimum wage hike
Prensa Latina, IBFD
A presidential decree effective 1 Jan 2012 raised the minimum monthly salary from 545 real (US$300) to 622 real. It also served notice that annual minimum wage increases will be set by presidential decree at least through 2014.
AFP reform study
The labor minister has confirmed that she shares a noted expert’s concern about the inability of private pension fund managers to generate adequate retirement income under existing rules. The ideal target of matching 70% of final income will not be reached without raising the retirement age – now 65 for men and 60 for women – and/or the 10% monthly worker contribution. The administration will appoint a committee to study reform options.