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: Executive compensation reform package previewed
EU: Short-selling, CDS regs adopted
France: President campaigns against executive pensions
South Africa: South Africa publishes 2012 Budget
UK: UK consults on dual-status worker pensions
South Africa publishes 2012 budget
Bua News, Tax Analysts
The South African Treasury has published the 2012-13 National Budget. Several significant proposals were unveiled, including:
- There is a 14-year plan for the National Health Insurance (NHI) system (IH 08/17/11) as well as a short-term funding boost for its pilot projects. NHI funding options under consideration include an employer payroll tax, a VAT increase and an income tax surcharge. A discussion paper on co-payments and other "user charges" will be published in April.
- From 1 Mar 2012, a new schedule of tax credits for contributions to medical schemes will be introduced. The basic rate will be R230 (US$30) per month. Credits for pensioners and people with disabilities will arrive in 2014.
- New tax deductions for contributions to pensions and other retirement funds would be capped at 22.5% of R250,000 (US$32,570) per year for age 45 and under, 27.5% of R300,000 (US$39,000) for those above 45. These measures should come into effect on 1 Mar 2014.
- Stakeholder consultations on the rules for retirement scheme withdrawals will commence shortly. The next few years will also see a study of the "anomalies" in the tax treatment of distributions from foreign retirement funds.
- Employer-provided retirement schemes would cease to provide benefits for those workers who quit a job and are soon rehired.
- There would be increased flexibility for employers in the valuation of fringe benefits.
- Employee share schemes will come under scrutiny to flag the loopholes that allow blending them with executive share schemes.
National pension plan back on the front burner
Mist News, FM
A national pension plan was featured in the 2007 Budget (IH 02/28/07) but hasn’t seen much progress in the past five years. Now there are reports that the Department of Social Development will flesh out the screen in an early March presentation. The employee contribution is expected to be 12% of salary up to R150,000 (US$19,949.25). This would fund a defined benefit pension scheme, an unemployment insurance scheme and death benefits.
Executive compensation reform package previewed
Financial Review, The Australian, Business Spectator
The Treasury has posted a press release responding to the Corporations and Markets Advisory Committee (CAMAC) recommendations for regulation of executive pay. The response doubles as a blueprint for government-sponsored legislation that will be released for public consultation in the second half of this year:
- Companies would be required to disclose their remuneration governance framework to shareholders.
- There would have to be a clawback provision in cases of material misstatement of financial results and any clawback actions or decisions against clawback when it might have been warranted would be reported to shareholders.
- The full range of key management termination payments would have to be included in a remuneration report.
- Top executive and director termination payments in excess of one year’s basic salary would be subject to a binding shareholder vote.
- There would have to be more accurate calculation of past, present and future remuneration.
Bill on workers’ entitlements in abandoned companies
The Treasury has introduced Corporations Amendment (Phoenixing and Other Measures) Bill 2012, which would protect worker entitlements when a company “phoenixes,” that is when management abandons a company to avoid paying what is owed workers, then opens a new enterprise with a clean slate. The bill would empower the Australian Securities and Investment Commission (ASIC) to place such companies in liquidation, freeing assets for release to workers under the General Employee Entitlements and Redundancy Scheme (GEERS).
Australia's Superannuation Roundtable convenes
Australia's Superannuation Roundtable (IH 02/15/12) held its first meeting. The Roundtable was developed to consider ideas for providing Australians with more options in retirement and improving certain superannuation concessions. The stakeholder panel discussed elements of the administration’s Stronger, Fairer, Simpler superannuation reform agenda, including:
- Gradually raising the superannuation guarantee rate from 9% to 12% between 1 Jul 2013 and 1 Jul 2019.
- Removing the 70-year age limit on the superannuation guarantee, effective 1 Jul 2013.
- Fully offsetting the 15% contributions tax for people with income of AUS$37,000 or lower with an annual government super contribution of $500. This would start on 1 Jul 2012.
- Continuation of the AUS$50,000 concessional contribution cap for those over age 50 with less than $500,000 in superannuation beyond 1 Jul 2012.
The government expects the Roundtable’s work to be completed by December 2012.
China confirms 401(k) project
Shenzhen Daily, Dow Jones, Beijing Review
Last summer, the China Securities Regulatory Commission (CSRC) was reportedly interested in a defined contribution scheme modeled after the US 401(k) plan. There has been intermittent press coverage since and the articles typically have included a CSRC disclaimer that there is no such plan underway. Now, the head of the CSRC research center has gone on record with, “I can tell you authoritatively that the CSRC is striving to build this mechanism.”
Proposed change to unreasonable dismissal rules
The administration has presented the Legislative Council with draft amendments to the Employment Ordinance. Under current law, the reinstatement order in cases of unreasonable termination is unenforceable. The bill would require any employer defying a reinstatement order to make a supplemental severance payment, the lesser of three months’ salary or HK$50,000 (US$6,447.24). Those not making this payment could face an HK$350,000 fine and three years in prison.
India defers minimum EPF benefit decision
Business Line, Domain-B, Economic Times
The Employees Provident Fund Organisation (EPFO) Central Board of Trustees (CBT) met last week to consider raising the minimum pension to Rs1,000 (US$19.22) per month (IH 12/14/11). No consensus was reached on funding the increase, so the trustees appointed a committee to draw up a study on the issue. The study will be delivered to a late March CBT meeting.
Maternity leave extension approved
Jerusalem Post, Arutz Sheva
The Knesset has passed a bill that improves the terms of maternity leave when infants need to be hospitalized at birth. The previous law allowed up to eight extra weeks of leave at 60% of pay. Mothers will now get the full period that a child was hospitalized – up to 10 weeks – at full pay. Their jobs and employment rights will be secure, but the leave period will not count toward seniority or pension credits.
Ruling on in-house subcontractors
Hani, Korea Herald, Koilaf
An eight-year court battle culminated in the Supreme Court’s 23 February decision that an in-house subcontractor came under the definition of dispatched worker, and was thus subject to the law on nonregular worker protection. Dispatched workers are technically not allowed in a number of industries – including the one in which this worker was employed – so in-house subcontracting has become a popular alternative form of “indirect employment.” As this subcontracted worker held the job for over two years, the court found that under the nonregular worker rules, his status had upgraded to regular worker.
More detail available on Korea's foreign worker re-employment terms
ABS, Manila Standard
Further coverage of the relaxed re-employment terms for foreign workers (IH 02/15/12) added some welcome detail. The Korean language test and employment training requirement for returning workers would be waived in most cases. These criteria are unnecessary provided the worker had not transferred without good reason during the previous term, a work contract has been concluded for the new term and the job is in a sector where Korean workers are still in short supply.
Local employment law
Last year, social partners drew up an agreement (French only) on how long foreign workers should reside in New Caledonia before they are eligible to apply for each of 531 different occupations. Legislation making these restrictions official and establishing a new authority to enforce these terms went into effect last week.
Industrial Relations Ordinance update
Business Recorder, The Nation, Pakistan Newswire
Industrial Relations Ordinance, 2011 (IH 10/05/11) was promulgated under emergency conditions while Parliament was out of session, so it now faces a 17 Mar 2012 deadline for passage in Parliament. Parliamentarians from the major parties have expressed confidence that they will reach a consensus on an amended version of the legislation by that date. All parties have already agreed on the need for a federal labor law regulator in an environment where the extent of industrial relations law’s devolution to the states (IH 06/02/11) is being contested.
Singapore posts foreign worker guidance
Straits Times, Business Times
Singapore’s Ministry of Manpower has posted guidance fleshing out the reductions to Dependency Ratio Ceilings (DRC), which specify the maximum proportion of foreign workers that companies can hire under the 2012 budget (IH 02/23/12). The guidance also provides a schedule of sharp increases in the construction sector’s foreign worker levy that will be introduced in three phases from July 2012 through July 2013. These measures are intended to “moderate the increasing dependence on foreign manpower which has grown by 7.5% per annum over the last two years.”
Taiwan to launch 2G health reform
CNA, China Post
Taiwan's second generation "2G" national health insurance system (IH 01/06/11) is slated to launch in July, according to the health minister. The 5.17% health insurance premium will be split into two components under the 2G scheme. Salary will be subject to a 4.9% levy while supplemental income such as bonuses above a certain level will be taxed at 6.9%.
Income Tax Law amendments passed
Tax Analysts, IBFD
Parliament recently passed a package of Income Tax Law amendments, including the measure that will tax foreign pensions as employment income (IH 01/25/12). The law will come into effect 1 Mar 2012. The statutory health insurance contribution will drop from 15% t o13%, effective 1 May 2012.
Business Week, IPE
The central bank has committed to its first offering of inflation-linked government bonds. This will be an important stabilizing factor in pension fund portfolios. The 2023 notes pegged to the consumer price index will go onto the market in the second quarter of this year.
Short-selling, CDS regs adopted
The European Council has announced adoption of final regulations that establish a common regulatory framework for dealing with member states’ short-selling and aspects of credit default swaps (CDS) that involve EU sovereign debt issuers (IH 12/01/11). The legislation imposes a limited ban on so-called “naked sovereign CDS” and sets a range of common disclosure requirements for member states. The rules will take effect on 1 Nov 2012.
Retirement age negotiations
Parliament has ruled out bringing forward any retirement age hike measures in the current session, but trade union confederation SAK has called for a dialogue with the government on how to achieve their common goal of raising the actual retirement age from 60.5 to 62.4 by 2025. There is already some flexibility in the retirement age, but SAK backs more efforts to encourage retirement deferral such as flexible hours and teleworking. Should other approaches not suffice, SAK’s board has already agreed that it is willing to negotiate a higher retirement age.
France's president campaigns against executive pensions
Dow Jones, AP, L’Argus de l’Assurance
President Sarkozy has now declared that he is running for re-election and he has closed the gap with the front-running opposition candidate (IH 02/01/12). One of his top campaign themes in a recent televised appearance was a crackdown on executive remuneration, particularly golden parachutes and supplemental management pensions (retraites-chapeau):
- By one account, golden parachutes – which are typically offered only to top management – would be forbidden.
- Retraites-chapeau are much more widely offered and he would curb the practice without affecting middle managers who are getting a modest benefit.
- Top management pay packages would be subject to binding shareholder vote.
Isle of Man
2012-13 Budget features hiring incentives
The Treasury has issued the 2012-13 Budget. It proposes a National Insurance holiday scheme that would subsidize the cost of hiring new workers from among the long-term unemployed and other populations that need a boost in the job market. The scheme would run for two years.
Retirement age hike bill advances
BNN, Baltic Daily, LETA
The Cabinet of Ministers Committee has now approved a bill that would gradually raise the retirement age to 65 by 2020 (IH 01/19/12). The ruling coalition has good prospects for passing the bill, but the opposition Harmony Center is confident that it has the constitutional minority necessary to have the bill suspended while it collects signatures to force a referendum on the bill (10% of eligible voters is the threshold).
Draft pension governance bill
The Social Affairs Minister has now released (Dutch only) his draft legislation on expanding the menu for pension fund board composition (IH 02/23/12). His version would add pensioners to the current 50% employer/50% employee model – allowing pensioners to hold up to half of the employee seats. As an alternative, boards could be staffed completely with external experts, but certain key decisions would need to be affirmed by a panel of employees, employers and pensioners.
Social security contribution cap proposed
The Finance Minister said that a cap on social security contributions relieving the “highest earners” is a core part of the administration’s economic stimulus plan. He promises details of the cap’s gradual introduction by the end of this year. The main trade union association, ZSSS, is already speaking out against it.
Update on expat health insurance mandate
NYT, Today’s Zaman
Absent formal guidance on the requirement that expats sign up for the national health insurance scheme within a month of having been in Turkey for a year (IH 02/01/12), the English-language press has been reporting on foreign embassy briefings and collecting anecdotes from foreigners who have visited the Social Security Institute (SGK). It has so far been confirmed that US, UK and Canadian citizens have the option of joining the scheme if they don’t already have health insurance, but they are not obliged to enroll. If they decide to get coverage more than a month after they have been in Turkey for a year, they will have to pay premiums plus interest for the entire period since that 13th month cut-off.
UK government proposes tax relief requirements on asset-backed contributions to pension schemes
Tax Analysts, IPE
The UK’s HM Revenue & Customs has published proposals that would further limit tax relief for asset-backed contributions (ABC) to defined benefit pension schemes (IH 12/01/11). The government aims to keep ABC a viable funding option, but seeks to block arrangements in which the asset-backed payments vary according to the scheme’s future funding position. The proposals would amend the Finance Bill 2012 (IH 12/14/11) and would apply to contributions made on or after 22 Feb 2012.
UK consults on dual-status worker pensions
The UK’s Department for Work and Pensions (DWP) has opened the consultation Workplace Pension Reform – Automatic Enrolment and European Employers, which addresses an unintended consequence of the auto-enrolment regulations. Some multinational employers will have “dual-status” employees who both qualify as “jobholders” under the UK’s pension auto-enrolment rules and come under the occupational pension rules of another member state because they move regularly between countries as part of their employment. Acknowledging that few cross-border pension schemes currently exist, and that employers may find it difficult to auto-enrol “dual-status” workers at reasonable cost, the DWP is proposing their exemption from the Pensions Act 2008. The DWP is accepting feedback through 2 Apr 2012.
UK government proposes removal of tax charge on NEST investments in sponsoring employers
The UK’s HM Revenue & Customs (HMRC) has opened a consultation on draft regulations for the National Employment Savings Trust (NEST), which provides low-cost pensions. The proposal would remove the tax penalty arising where NEST investments in the shares of sponsoring employers amount to more than 20% of the market value of the pension plan assets. HMRC has concluded that both enforcement and compliance would be unwieldy administrative burdens. The consultation closes on 14 Mar 2012.
Dutch hybrid pension models considered
The Observer, This is Money, IPE
The Pensions Minister has been advocating the Dutch “defined ambition” (DA) pension scheme model as an ideal compromise approach for occupational pensions. By his account, the scheme would aim for a certain benefit range and report back to members on how the scheme is performing. Risks associated with variables such as investment performance and longevity would be shifted to participants and DAs would face fewer regulations than final salary schemes. The other popular Dutch hybrid, collective defined contribution (CDC) schemes, is spotlighted in a new Work and Pensions Committee inquiry into best practices in occupational pensions as a contender for optimal risk-sharing balance. Feedback is welcome through 13 April.
Mexico reassigns pension accounts
BNamericas, El Economista
Mexico’s National System of Retirement Savings (Consar) conducted an unprecedented reallocation (Spanish only) of retirement funds on 31 January. Workers who contribute to the pension system and who do not select a pension fund manager (Afore) are placed with a default Afore. On 31 January, unregistered pension accounts that had been in a low-yield default Afore for at least 24 months were automatically reassigned to one of the four Afores that had shown consistently high yields over the past 24 months. Consar intends to encourage workers’ registration with Afores, and increase competitiveness within the pensions industry.