Global Retirement Update

Transcription

1 Global Retirement Update December 2012 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 Israel Effective July 1, 2014, employees will have the right to choose their own preferred insurance broker instead of working with the broker selected by their employer. The new requirement applies to retirement benefits, severance pay funding, and professional training fund arrangements. Employers should expect that their benefit administration processes will become more complex, and costs will increase as premiums and funding payments will be made to a wider range of insurance companies, pension funds, and investment companies. The goal of the new requirement is to increase competition among providers so that employees receive better and lower cost services. However, the impact of the new regulation on costs is uncertain since many large employers have negotiated preferred terms with brokers. Puerto Rico The Department of Treasury extended the deadline for the adoption of qualification amendments to retirement plans required by the Internal Revenue Code of 2011, as amended. Plans qualified only in Puerto Rico or dual-qualified plans (Puerto Rico and the United States) were required to be amended to comply with the new qualification provisions in the Internal Revenue Code of 2011 on or before the last day of the plan year beginning on or after January 1, Circular Letter No extends the deadline to June 30, 2012 or the last day of the first plan year beginning on or after January 1, 2012, whichever is later. The deadline to submit a request for the retroactive qualification under the Internal Revenue Code of 1994, as amended, is September 30, 2013 or the deadline to file the income tax return of the employer for the first taxable year beginning after December 31, 2011, whichever is later. Copyright 2012 Aon Hewitt 1

2 Recent Developments Americas The U.S. Internal Revenue Service (IRS) released Notice , which extends the deadline to amend a defined benefit (DB) plan to satisfy the requirements of Section 436 of the Internal Revenue Code and provide associated relief from the requirements of Section 411(d)(6). The deadline for adopting an interim amendment to comply with Section 436 has been extended to the latest of the following dates: 1) the last day of the first plan year that begins on or after January 1, 2013; 2) the last day of the plan year for which Section 436 is first effective for the plan; or 3) the due date, including extensions, of the employer s tax return for the tax year that contains the first day of the plan year for which Section 436 is first effective for the plan. The U.S. Internal Revenue Service (IRS) released Notice , which identifies statutory, regulatory, and guidance changes that must be taken into account in submissions by retirement plan sponsors. Specifically, the Notice contains the 2012 Cumulative List of Changes in Plan Qualification Requirements (2012 Cumulative List). The 2012 Cumulative List is to be used by plan sponsors and practitioners submitting determination letter applications for plans during the period beginning February 1, 2013 and ending January 31, According to the IRS, these plans will primarily be single employer individually designed defined contribution plans and single employer individually designed defined benefit plans that are in Cycle C, and Section 414(d) governmental plans (including governmental multiemployer or governmental multiple employer plans) that choose to file during Cycle C. In Canada, final regulations have been released to implement section 55.2 of the Pension Benefit Act (PBA) and permit employers to use irrevocable and unconditional standby letters of credit from a financial institution to cover up to 15% of a pension plan s solvency liabilities. The regulations do not apply to multiemployer, jointly sponsored, or public-sector pension plans. Letters of credit can only be used for new solvency payments due after January 1, 2013, and must have an expiry date that is no later than one year after their effective date. While fees and expenses associated with enforcement of the letter of credit may be paid from the pension fund, subject to section 22.1 of the PBA, fees and expenses related to obtaining, holding, amending, or canceling the letter of credit cannot. No major substantive changes were made to the government s proposed regime following consultations that occurred over the summer. The final regulations also establish: the maximum value of letters of credit and their calculation method; funding rules for plans using letters of credit; various contractual requirements and conditions that must be met for banks and credit unions to issue letters of credit and to hold letters of credit in trust; circumstances in which a default is deemed to have occurred and procedures to be followed in the event of default; requirements for permissible trust agreements; and distribution and inspection requirements for letters of credit. The Canadian federal government has raised the annual contribution limit for Tax-Free Savings Accounts (TFSAs) by CAD 500. Hence, the new contribution limit is CAD 5,500, effective January 1, This is the first annual increase since TFSAs were introduced in Copyright 2012 Aon Hewitt 2

3 The Canadian federal government has introduced Bill C-48, the Technical Tax Amendments Act, 2012, which would implement various measures relating to the taxation on nonresident trusts, their beneficiaries, and Canadian taxpayers who hold interest in offshore investment property. An exempt foreign trust includes certain foreign trusts established to provide benefits for services provided by employees or former employees and certain trusteed foreign pension plans or similar arrangements. An exempt person includes certain federal or provincial pension or workers compensation administrators, and their wholly owned intermediaries. Other Income Tax Act and Income Tax Regulation changes relate to: lump-sum amounts and pension repayments; credits for Employment Insurance and Quebec Parental Insurance Plan premiums and Canada Pension Plan contributions; conditions for registering a profit-sharing plan as a Deferred Profit Sharing Plan (DPSP); relief for excess contributions; transfers to a Registered Pension Plan (RPP), Registered Retirement Savings Plan; Registered Retirement Income Fund, or DPSP, including premium refunds and member contributions; default or failure under letters of credit; deductibility of eligible RPP contributions relating to the purchase of a business, and RPP issues related to previous employment, predecessor employers, and business re-organizations; tax-exempt pension investment corporations; money purchase benefits from RPPs to ensure they qualify for the pension credit and pension income splitting and joint liability for tax on split income; the interest exemption for foreign pension and other tax-exempt entities; prescribed annuity contracts; and changes to the prohibited investment rules for multiemployer plans. These tax measures were substantively enacted for purposes of International Financial Reporting Standards and Accounting Standards for Private Enterprise (ASPE) on November 21, 2012, but will not be considered enacted for purposes of US GAAP until Bill C-48 receives Royal Assent. In 2010, the government of Prince Edward Island (Canada) introduced Bill 30, a new Pension Benefits Act; however, it never proceeded beyond first reading. The government has now re-introduced this legislation, as Bill 12, the Pension Benefits Act. Although Bill 12 is generally similar to Bill 30, there are some key differences, such as: a revised definition of former member and a new definition of retired member ; new provisions relating to designated multijurisdictional pension plans; greater specificity regarding defined contribution plans and optional benefits; introduction of target benefit plans; waiver of a surviving spouse s entitlement to preretirement death benefits; introduction of phased retirement; introduction of letters of credit to fund up to 15% of solvency deficiencies; electronic communications; new restrictions on the commutation or surrender of a pension, deferred pension, pension benefit, annuity, or prescribed retirement savings arrangement (instead of an outright prohibition, as contained in Bill 30); new provisions relating to insolvency and bankruptcy; elimination of partial windups, by both the employer and Superintendent (partial windups had been allowed in Bill 30); elimination of grow-in rights for members whose age plus years of service equals 55 (grow-in had been included in Bill 30); and increased fines for offences contrary to the Act or regulations. The Mexican tax authority has issued changes to fiscal regulations affecting pension plans. Similar to the changes issued by the Commission on Retirement Savings (CONSAR), employers with pension plans must complete new registration forms with the following information: employee names, employee status, federal tax identifiers, social security numbers, and personal identification numbers (clave única de registro de población, CURP). The tax authority must be informed of the employees participating in the plan on an annual basis. As the result of another reform, employees with personal retirement plans can now change from one pension fund provider to another without paying taxes. Also, pensioners must inform their employer about all pension income received in order to have their taxes calculated. Copyright 2012 Aon Hewitt 3

4 Asia In Australia, the government recently released the draft Superannuation Legislation Regulation Amendment. This amendment would amend the Corporations Regulations 2001, Superannuation Guarantee (Administration) Regulations 1993, and Superannuation Industry (Supervision) Regulations It would introduce the following key changes: Require trustees to provide a significant event notice to members of a MySuper product, where the trustee suggests or recommends that they transfer their interest in the MySuper product to any other product; Amend the conditions for insurance with respect to death that superannuation funds must meet in order for contributions to those funds to satisfy choice of fund requirements; Allow the existing definition of permanent incapacity in the Superannuation Industry Supervision (SIS) Regulations; Prohibit trustees from providing insured benefits for members unless they are backed by an insurance policy from an insurer; Prohibit trustees from providing externally insured benefits (other than those satisfying the conditions of release in the SIS Regulations for death, terminal medical condition, permanent disability, and temporary disability) to beneficiaries who join the fund as of July 1, 2013; Exempt the transfer of accrued default amounts to a MySuper product in another fund from the successor fund transfer rules; Require trustees to provide a notice to a member when they are attributing the member s accrued default amount to a MySuper product or moving it to another fund; and Allow life and total and permanent disability insurance to be offered on a compulsory basis for MySuper members if the trustee is reasonably satisfied that the insurance cannot be provided on an opt-out basis at reasonable cost. If enacted, the proposed regulations would be effective July 1, The Australian government also released the final tranche of MySuper legislation, the Superannuation Legislation Amendment (Service Providers and Other Governance Measures) Bill The Bill includes Cooper Review recommendations to override any provisions in a fund s governing rules that stipulate trustees must use specified service providers or only invest in or through specified entities. A trustee will be required to enter into arrangements that are in the best interest of the members. The Bill also responds to concerns relating to director liability as included in the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Act A bill establishing a Trans-Tasmanian retirement portability savings plan was passed by the Australian Senate. Under the Superannuation Legislation Amendment (New Zealand Arrangement) Bill 2012, the transfer of Copyright 2011 Aon Hewitt 4

5 retirement savings between certain Australian superannuation funds and New Zealand KiwiSaver plans will be permitted. The two governments signed an agreement to allow Australians and New Zealanders to transfer retirement savings when they move between the two countries. The legislation will be effective July 1, In India, the Employees Provident Funds and Miscellaneous Provisions (Amendment) Bill, 2012 would require all organizations with five or more employees to participate in the employee provident fund programs. Currently, all establishments specified in the schedule of the Provident Fund Rules and all organizations employing 20 or more persons are required to participate in the Employees Provident Fund, the Employees Pension Scheme, and the Employees Deposit-Linked Insurance Program. An establishment must continue to participate even if the number of persons subsequently employed is less than 20. It is not known when action will be taken on the Bill. Under the pending Payment of Gratuity Amendment Bill, 2012, employers in India would be required to pay 30 days gratuity for every year of service. Currently, employers with establishments of ten or more workers are required to make a gratuity payment to employees upon the termination of their service. All employees are entitled to receive this payment (except apprentices) if they have at least five years continuous service. Currently, the gratuity payment is equal to one-half of the last month s pay for every year of service or service in excess of six months. Pay is defined as base pay plus the dearness allowance. The maximum payment is INR 1,000,000. Gratuities are payable when the employee retires or reaches superannuation (retirement) age, resigns, is laid off, disabled, or dies. If employment is terminated due to disability or death, the requirement of five years continuous service is waived. Gratuity payments may be wholly or partially withheld from employees who are terminated for misconduct. It is not known when action will be taken on the Bill. The Indian and Japanese governments have signed a social security totalization agreement. Under the agreement, expatriate employees will pay social security contributions only to their home country system if they leave the host country within five years. Long-term (five or more years) residents will pay contributions to the system of their country of residence. The respective legislatures must ratify the agreement. The government of India also signed a social security totalization agreement with Sweden. Under the agreement, expatriate employees will not have to pay social security contributions in their host country for two years if they continue to pay contributions in their home country. The Swedish government reports that this is the first totalization agreement that has been signed with a country in Asia. The agreement must still be ratified by the respective legislatures. The Philippines Central Bank expects Personal Equity and Retirement Accounts (PERAs) to be rolled out in the first quarter of PERAs are voluntary tax-favorable individual retirement accounts to supplement social security and employer pensions. Individuals may open PERA accounts with banks and insurance companies with an annual maximum contribution of PHP 100,000 (individuals) and PHP 200,000 (couples). Contributions and account earnings are tax free provided the funds are withdrawn when a participant is age 55 or older. Individuals receive a tax credit of 5% of their PERA contributions. Employer contributions to a PERA are tax free to the employee. Employers, however, are permitted to deduct only the amount that brings the total contribution to PHP 100,000. In July 2008, PERA became law, and in 2011, the Bureau of Internal Revenue issued the relevant tax regulations. The Central Bank must still establish the qualifications for the entities offering the PERAs and accredit the administrators, investment managers, and custodians. Copyright 2012 Aon Hewitt 5

6 Europe On November 22, 2012, the U.K. Department of Work and Pensions (DWP) published a discussion document on its strategy for reinvigorating workplace pensions. The document addresses the issues of an aging population and the need to boost pension savings and sets out what the government sees as the key issues impacting outcomes for savers. The key reinvigoration objectives are: Increase the amount people are saving in pensions; Increase the amount people receive for savings; Enable industry innovation and development of new products, including those that will give members more certainty and encourage more risk-sharing; Increase transparency and build trust, confidence, and engagement in pension saving as the norm; and Ensure the sustainability and stability of the U.K. pension system. The most interesting new material explores the scope for a new category of Defined Ambition (DA) pension. The aim is to create greater certainty for members and lower cost volatility for employers, in comparison with defined contribution and defined benefit plans, respectively. The principles for the development of DA are that it should be: consumer-focused; sustainable; intergenerationally fair; risk-sharing; regulated proportionately; and transparent. The document sets out several types of schemes for further exploration. The DWP expects that an early outcome of this work is likely to be a publication outlining a framework for DA pensions, possibly jointly with industry. In the United Kingdom, the Chancellor delivered his 2012 Autumn Statement on December 5, The main pensions-related issues are as follows: Pensions Taxation: 1) The Annual Allowance will be reduced to GBP 40,000 from ; 2) The Lifetime Allowance will be reduced to GBP 1.25 million from ; 3) The government will offer a fixed protection regime to individuals to prevent any retrospective tax charges from reducing the lifetime allowance; Her Majesty s Revenue and Customs (HMRC) is calling this fixed protection The government also wishes to offer a personalized protection regime for individuals, in addition to fixed protection, and will consult on this in the next few months; and 4) The government will increase the capped drawdown limit at all ages from 100% to 120% of the value of an equivalent annuity (reverting to the pre-april 2011 maximum for ages up to 75). Scheme Funding: The Department of Work and Persons (DWP) will consult on providing the Pensions Regulator with a new statutory objective to consider the long-term affordability of deficit recovery plans to sponsoring employers to ensure that regulation of defined benefit schemes does not act as a brake on investment and growth. The DWP also will consult on whether to allow companies undergoing valuation in 2013 or later to smooth asset and liability values. (The Pensions Regulator has responded to the announcement, indicating that the consultation is expected in 2013 and that, until the regime is altered in any way, there are no changes to the responsibilities of trustees and sponsors.) Copyright 2012 Aon Hewitt 6

7 State Pensions: The Basic State Pension will increase by 2.5% (as per existing policy) from GBP per week ( ) to GBP per week ( ). The Additional State Pension will be uprated in line with price inflation. In the United Kingdom, the auto-enrollment thresholds that will apply for were confirmed in December A draft order will now be put before parliament. The proposed thresholds are: GBP 9,440 for the auto-enrollment trigger (aligned with the PAYE threshold announced in the Autumn Statement); GBP 5,668 for the lower limit on qualifying earnings (aligned with the Lower Earnings Limit); and GBP 41,450 for the upper limit on qualifying earnings (aligned with the Upper Earnings Limit). The U.K. Pension Protection Fund (PPF) has announced that its method of calculating compensation for men and women to ensure they are treated equally will apply to all pension schemes in assessment, following the pilot that started in November Its methodology is found to be fit-for-purpose and meets the PPF s legal obligations, although there will be some minor updates to the currently published version of the technical guidance released in November PPF will write to all trustees to tell them how they will be affected. Trustees and advisers of schemes that expect to transfer to the PPF before May 31, 2013 should not implement the methodology (the PPF will do these calculations and adjust compensation payments accordingly). However, those with a transfer date from June 1, 2013 will be expected to implement the PPF s methodology. All schemes in assessment should complete the Scheme Questionnaire set out in Part D.2 of the Technical Statement. The PPF also released a set of frequently asked questions (FAQs). The PPF s proposal only relates to pension schemes in a PPF assessment period, and is it not seeking to set an industry standard. The PPF reiterates that the position on s179 valuations remains unchanged there is no need to allow for GMP equalization in s179 valuations. In the United Kingdom, an industry working group has published a Code of Conduct on defined contribution pension charges that is intended to help employers make informed choices about which plans to use for auto-enrollment. The code aims to improve transparency and set a new standard through consistent disclosure of charges and investments costs. It specifies that all charges should be clearly and accurately stated in writing and that the employer should receive a standard summary of charges document, setting out all services to be provided. In addition, the employer should be provided with clear examples of the effect of charges on the pension pots of its employees. Ireland s 2013 Budget includes measures designed to encourage participation in occupational and personal pensions. Tax relief on pension contributions would continue at current rates, and contributions to plans that would result in pension income up to EUR 60,000 would receive tax relief. The 0.6% Pensions Levy on privatesector pension assets would end in 2014 as planned. Individuals would be permitted to withdraw up to 30% of Additional Voluntary Contributions made to supplement retirement benefits. The withdrawal would be subject to the individual s marginal tax rate, and the option to withdraw would be available for three years. Also, the government plans to hold a consultation on how the Standard Fund Threshold would be reduced from EUR 115,000 to EUR 60,000. The current maximum pension fund for tax purposes is currently 20 times the Standard Fund Threshold. Copyright 2012 Aon Hewitt 7

8 Effective December 1, 2012, pension benefits increased by 2% in Belgium. Social security pensions are subject to periodic adjustments based on changes in the consumer price index (CPI). Social security benefits and earnings ceilings for certain benefits are increased by 2% each time the two-month average of an index figure equals or exceeds a benchmark. The index figure equals the average of the CPI for the month in question and the previous three months. The old age pension increased to EUR 1, and the survivor s pension increased to EUR 1, The guaranteed pension (GRAPA), payable to low-income elderly individuals age 65 and older, increased to EUR ; the basic amount is EUR Employers in Belgium with 20 or more employees are reminded that they must draw up a plan to maintain or increase the employment of individuals age 45 and older in 2013; the plan also must include progress measures. It must be submitted to employee representatives for information and consultation. The requirement to have a plan was included in a collective labor agreement signed by the social partners in June The agreement was made compulsory by a royal decree that was published in the official gazette in November The Dutch government announced that plans for a revised financial assessment framework (FTK) for second-pillar pension funds would be delayed by one year. Legislation was expected to be introduced to parliament in early 2013, with an implementation date of Now, implementation is likely in Switzerland s Interior Ministry proposes to reform the social security system. The retirement age for women would increase from age 64 to age 65, and early retirement would be discouraged while deferred retirement would be encouraged. A trigger would be introduced to the old age and survivors pension system to increase contributions and decrease benefits if the system were underfunded, and the occupation pension plan (BVG) would have a lower conversion rate. The Interior Minister is expected to present a detailed plan to the cabinet for discussion in the summer of Parliament would debate a bill in 2014, after which citizens would vote on a constitutional amendment. In 2013, pensions in Spain will not increase in line with the inflation rate. The government will increase pensions by 1%, using funds from the social security reserve to pay for the increase. The move to delink pensions increases from inflation represents a reversal of a pledge the government made during the campaign period. A decree law was published in the official gazette. The Greek parliament is reviewing a new social security bill that would gradually reduce pension payments. Pensions up to EUR 1,500 would be reduced by 5% and pensions between EUR 1,500 and EUR 2,000 by 10%. Reductions would continue up to pensions exceeding EUR 3,000, which would be reduced by 20%. Pensions paid for serious disabilities would not be cut. Also, Easter, summer, and Christmas pension bonuses would be eliminated. Russia s Duma recently passed legislation that will change the contribution levels to first- and second-pillar pensions. The change applies to contributions made by employees born in or after In 2013, contribution levels will remain the same. As of 2014, individuals enrolled in the second pillar have a choice continue to have 6% of pay up to a specified ceiling directed to the second-pillar rate or reduce that rate to 2% and have the remaining funds redirected to the first pillar. The Russian government is outlining a new strategy for old age pension reform. The reforms would be organized into two stages and During the first stage, the number of years of pensionable service Copyright 2012 Aon Hewitt 8

9 would increase from five years to ten years, and contribution rates for employees working in hazardous conditions would increase. Also, pension benefits would be based on an employee s length of service and lifetime wages. During the second stage, the legal form of private pension funds would change; the legal status of the Pension Fund of Russia would be redefined; a single register for private pension fund accounts would be established; and a single actuarial center would be created. In Slovenia, the parliament passed legislation that increases the retirement age from age 63 to age 65, effective January 1, Early retirement is permitted with 40 years service. Effective December 1, 2012, the minimum monthly In Ukraine increased from UAH 856 to UAH 884 due to an increase in the cost of living. Allowances, bonuses, and additional pension based on the cost of living also increased. In Lithuania, the parliament has passed reforms to second-pillar pensions. Currently, second-pillar pension fund members have a percentage of their first-pillar contributions redirected to the second pillar; 1.5% of pay is deposited in a second-pillar fund. Under the reforms, the second-pillar contribution will increase to 2.5% of pay in 2013, and then drop to 2.0% of pay in As of 2014, individuals can voluntarily contribute an additional 1% of pay after tax, which will be matched by a government subsidy equal to 1% of average national pay. The voluntary contribution and subsidy will increase to 2% as of Second-pillar members who entered the system before 2013 must notify their pension fund provider between April and September 2013 if they wish to change their contribution level. They also can inform their provider if they wish to have their second-pillar contribution moved back to the first pillar. New second-pillar members (individuals joining after 2013) will automatically contribute to the reformed system. The president is expected to sign the reform bill into law. * * * * For more information on the topic and countries in this newsletter, please refer to the Aon Hewitt Country Profiles eguide. You can learn more about the Country Profiles eguide here. Copyright 2012 Aon Hewitt 9

10 About Aon Hewitt Aon Hewitt is the global leader in human resource solutions. The company partners with organizations to solve their most complex benefits, talent, and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates, and administers a wide range of human capital, retirement, investment management, health care, compensation, and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit Copyright 2012 Aon Hewitt Inc. 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 Aon 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. Aon 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. Aon Hewitt reserves all rights to the content of this document. Copyright 2012 Aon Hewitt 10