Global Retirement Update

Transcription

1 Aon Hewitt Legislative Reporting Global Retirement Update February 2015 This Update summarizes recent legislative developments and trends related to retirement and financial management and highlights recently passed and pending legislation that may require employers to take action to comply with new rules or review existing plans. Action May Be Required Italy Employers are reminded, effective March 1, 2015, employees may elect to receive their termination indemnity accrual (Trattamento di Fine Rapporto, TFR) with pay instead of at the end of employment. Employees who elect this option receive TFR accruals in their pay until June 30, 2018; accruals will be subject to ordinary taxation (i.e., marginal tax rate will be applied). Social security contributions will not be applicable to this amount. TFR accruals represent the largest contribution to fund employees' retirement income. The 2015 Budget Law also increased the taxation on the revaluation of TFR annual accruals from 11% to 17% and the taxation on pension fund investment returns from 11% to 20%. Recent Developments Americas The U.S. Department of Labor s (DOL) Employee Benefits Security Administration (EBSA) published final regulations on annual funding notice requirements for defined benefit (DB) plans. The final regulations implement the annual funding notice requirement of Section 101(f) of ERISA. The final regulations require the administrators of DB plans (single employer and multiemployer) to furnish an annual funding notice to participants, beneficiaries, the Pension Benefit Guaranty Corporation, and certain other persons. The regulations enhance retirement security and increase pension plan transparency by ensuring that workers receive timely and accurate notification annually of the funded status of their DB pension plans. The final regulations also contain necessary conforming amendments to other regulations under ERISA, such as the summary annual report regulation. The final regulations become effective on March 4, The final regulations are applicable to notices for plan years beginning on or after January 1, Prior to this applicability date, however, plan administrators may elect to comply with the requirements of the final regulations, and the DOL, as a matter of enforcement, will consider such compliance as satisfying the requirements of Section 101(f) of ERISA. Employers with Puerto Rican-qualified pension plans may have to file any plan restatements or qualification amendments with the Puerto Rican Treasury by April 15, Calendar-year employers that restated a qualified plan or adopted a Risk. Reinsurance. Human Resources.

2 qualification amendment, effective 2014, must file this restatement or qualification amendment with the Treasury on or before April 15, 2015 or the extended due date granted by the Treasury. Also, Defense of Marriage Act (DOMA) amendments are considered qualification amendments by the Treasury and must be filed on or before April 15, 2015 or the extended due date granted by the Treasury. Asia Pacific The Indian government may reduce the Employees Provident Fund contribution rate. It recently announced a proposal to reduce employees contributions from 12% to 10% of basic wages. It also proposed to reduce the threshold number of employees for coverage under the Employees Provident Fund and Miscellaneous Provisions Act, 1952, from 20 to 10 employees. In other retirement news, the Ministry of Finance has proposed that withdrawals from public provident funds be delayed from six years to eight years. Employers in Indonesia should note that the National Manpower Security Agency (BJPS Ketenagakerjaan) will replace Jamsostek in Employees will be automatically transferred to the new system from Jamsostek. Contributions will not change. Employers must contribute 3.7% of total pay for old age pensions; 0.3% of total pay for a death benefit; and 0.24% to 1.74% for occupational illness or injury. Employees continue to contribute 2% of total pay for old age pensions. Expatriate employees must be enrolled in the BJPS. Europe As of April 2015, defined contribution (DC) savers in the United Kingdom will have unrestricted access to their pension savings from age 55, if their plans allow. As part of the reforms, the government has committed to providing free impartial guidance on options and impact. The new guidance service will be branded Pension Wise: Your money. Your choice. A January update from Her Majesty s (HM) Treasury gives further details, explaining that the service will be delivered in a four-stage process: Stage 1: Awareness Individuals will be signposted to the service by their plan trustees or contract-based pension provider. A marketing campaign will increase awareness; Stage 2: Contacting the Service This may be via the website, by telephone, or face-to face; Stage 3: Guidance Sessions Telephone and face-to-face sessions will initially be designed as 45-minute sessions and each consumer will be limited to a single session; and Stage 4: Summary and Actions Users will be given a summary document showing their options and what actions they may choose to take. The service will help users identify where additional specialist help may be needed. For trust-based DC plans, trustees will need to signpost their members to the guidance service, and the disclosure regulations will be amended accordingly. Amending regulations will be published some time before April 6, HM Treasury is developing an interim standardized letter, to be included in retirement packs and other relevant member communications. Procedures will need to be updated as of April 2015, following the publication of regulations. In the United Kingdom, the Financial Conduct Authority is to introduce a second line of defense, in addition to the guidance guarantee, for contract-based plans to protect members who want to access the new defined contribution flexibilities. When customers contact their pension provider to access their pension, providers will have to ask about key aspects of their circumstances that relate to the choice they are making, such as health, lifestyle, or marital status. Providers will be required to give relevant risk warnings in response to answers from the consumer. The Department of Work and Pensions is working with the Regulator to consider how equivalent requirements can be applied to trust-based plans. Companies will need to ensure that plan communications are compliant with these requirements when details become available. Global Retirement Update Aon Hewitt February

3 In the United Kingdom, the Finance Act 2004 (Registered Pension Schemes and Annual Allowance Charge) (Amendment) Order 2015 came into force on January 28, This Order amends various annual allowance (AA) provisions, and in some cases affects how pension input amounts are calculated for AA purposes. The Order makes changes to the treatment of block transfers for AA purposes. In summary, it: Clarifies how the current legislation applies in relation to transfers arising on or after January 28, 2015; Applies a different treatment (based on Her Majesty s Revenue & Customs understanding of the previous legislation for underfunded defined benefit (DB) (and cash balance) block transfers where the value of the members benefits is virtually the same immediately before and after the transfer; Minimizes the need to disturb treatment that has already been applied for such block transfers. The provisions are retrospective from tax year 2011/12. This treatment applies in all cases to the receiving plan, but for the transferring plan, the provisions are backdated only if the revised adjustments result in no increase in tax. The Order also includes provisions to ensure that pension plan administrators do not normally have to test deferred benefit rights against the AA, and to make the provisions for the plan pays facility consistent between DB and money purchase. For AA charges arising (and elected for) on or after January 28, 2015, all plan pays adjustments made before the benefits come into payment are added back in when calculating the pension input amount. In addition, as of July 28, 2015, any election under the mandatory plan pays facility must be made before benefits are put into payment. Trustees may need to confirm the appropriate annual allowance treatment has been made for bulk transfers taking place since April 6, Also, procedures for plan pays may need to be reviewed. The U.K. government has confirmed the earnings trigger for automatic enrollment for 2015/16. The trigger would remain at GBP 10,000. The lower qualifying earnings threshold would increase to GBP 5,824, and the upper qualified earnings limit would increase to GBP 42,385. Draft regulations will be sent to parliament in early If approved, the increased thresholds will apply from April 6, Following consultation in 2014, a revised Statement of Recommended Practice (SORP) on the financial reports of pension plans has been published and applies for plan years starting on or after January 1, 2015 (or earlier if a plan chooses) in the United Kingdom. Particular work will be needed where the plan holds any annuities in the name of the trustees. These will now need to be included as assets in the accounts. In order to comply, plans will need to: Track which annuities (whether individual or bulk) are actually held in the trustees names; Check whether payments being received are consistent with benefits being paid out; and Consider the basis for valuing annuities, both for the first accounts under the new SORP and the approach for subsequent accounts. Trustees will, therefore, need to discuss with their administrators and insurers how to carry out the annuity tracking, and discuss with their actuaries how to value the annuities. In addition, among other changes, new disclosures are needed in relation to investments, including the risk categorization of each asset and discussion of the risks and costs. Trustees will need to discuss the best approach going forward with their investment consultants and managers, and then, as part of the planning process for future years, they will need to liaise with the investment managers over these disclosures. Although the new SORP applies directly only to accounts for plan years ending on or after December 31, 2015, comparative figures will be required for the beginning of that plan year. Trustees should consider the steps required to comply with the new SORP. In the United Kingdom, following consultation, regulations have been laid before Parliament that will introduce new governance standards and charging restrictions in occupational defined contribution (DC) plans from April The Regulator also has published an essential guide for trustees on the new regulations. The main points of interest in the final regulations are: Global Retirement Update Aon Hewitt February

4 The governance standards do not apply to additional voluntary contributions (AVCs) where they are the only money purchase benefits in the plan. Similarly, the charge cap does not apply to AVCs in qualifying plans where the rest of the plan is defined benefit; The chair of trustees annual statement will need to be prepared and signed off as part of the plan s annual report within seven months of the plan year end. The first statement will be required for the plan year ending after April 5, 2015; There is a requirement to prepare a statement of the principles governing decisions about the default arrangement s investments, in addition to the plan s statement of investment principles; The Regulator will have the power to impose an automatic penalty (between GBP 500 and GBP 2,000) for failure to produce a chair s statement. Penalties can apply for other breaches; From April 2016 qualifying plans will not be able to impose higher charges for deferred members than for contributing members, unless the deferred member ceased to contribute before April 6, 2016; and Similar requirements will apply for contract-based plans under rules being introduced by the Financial Conduct Authority. Effective January 1, 2015, eligibility requirements for an old age pension changed in Belgium. The maximum number of years of service (45 years) has been replaced by a maximum number of days of service (14,040 days). There is no cap on the number of years of contributions, and employees who work part of a year prior to retirement no longer lose their last months of contributions. In the event an employee s work history exceeds 14,040 days, the number of excess days with the least amount of earnings will be eliminated from the contribution base. Employment costs have been reduced for some employers in France. Effective January 1, 2015, employers are exempt from paying the following contributions for employees who earn the national minimum wage: social insurance, family allowances, occupational disease, solidarity, and national housing fund. In Sweden, the tax treatment of private pension premiums is less favorable. Effective January 1, 2015, the maximum deduction for private pension premiums is SEK 1,800 per year. Previously, the maximum deduction was SEK 12,000 per year. The Ministry of Finance has introduced draft legislation that would abolish the deduction for pension insurance and contributions to private savings accounts for most individuals as of January 1, The Greek government announced its plan to draft legislation that would allow same-sex couples to have a cohabitation agreement. Same-sex couples with a cohabitation agreement would have the same legal rights as heterosexual couples who are not married but in a committed relationship with regard to social security, child custody, and inheritance. The Bulgarian government announced plans to amend recent changes to the second-pillar pension system following opposition from the government ombudsman and the pension industry. For second-pillar pension fund members who opt to switch to the first pillar, their decision would no longer be irreversible. Members who are more than five years away from retirement would be able to change their enrollment once a year. Funds from the second-pillar would be transferred to a stability fund rather than the first pillar. Individuals who are new to the labor market would have three months to choose a second-pillar fund or be assigned to a default fund. For More Information If you are a subscriber to the Aon Hewitt Country Profiles eguide platform and wish to access the full text of any Country Profile including all Updates, please click here and enter your eguide User Name and Password. Global Retirement Update Aon Hewitt February

5 About Aon Hewitt Aon Hewitt empowers organizations and individuals to secure a better future through innovative talent, retirement and health solutions. We advise, design and execute a wide range of solutions that enable clients to cultivate talent to drive organizational and personal performance and growth, navigate retirement risk while providing new levels of financial security, and redefine health solutions for greater choice, affordability and wellness. Aon Hewitt is the global leader in human resource solutions, with over 30,000 professionals in 90 countries serving more than 20,000 clients worldwide. For more information on Aon Hewitt, please visit aonhewitt.com Aon plc This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or circumstances. The comments in this summary are based upon Hewitt s preliminary analysis of publicly available information. The content of this document is made available on an as is basis, without warranty of any kind. Hewitt disclaims any legal liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Hewitt reserves all rights to the content of this document. Global Retirement Update Aon Hewitt February