Global Retirement Update

Transcription

1 Global Retirement Update December 2011 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 Puerto Rico Employers must begin to review their qualified retirement plan arrangements in light of technical amendments to the Internal Revenue Code. Act No was signed into law by Governor Fortuño. The Act provides technical amendments to the new Puerto Rican Internal Revenue Code of It addresses trust requirements; coverage testing; aggregation requirements; highly compensated employees; annual benefit, compensation, and contribution limits; pretax, after-tax, and catch-up contributions; rollovers; tax exemption on certain distributions; tax withholding; withholding and reporting requirements; tax on nondeductible contributions; excise tax on excess contributions; plan loans; and qualification letter requirements. Recent Developments Americas The U.S. Internal Revenue Service released Notice , which provides a sample plan amendment that plan sponsors may adopt to satisfy Section 436 of the Internal Revenue Code (as added by the Pension Protection Act of 2006) regarding limitations on the accrual and payment of benefits under certain underfunded single-employer defined benefit plans. This Notice also extends both the deadline to amend a plan to satisfy Section 436 and the period during which such an amendment is eligible for relief from the anti-cutback requirements of Section 411(d)(6). Copyright 2012 Aon Hewitt 1

2 In Quebec (Canada), an amendment to the Supplemental Pension Plans Act (SPPA) that extends payment options in the event of insufficient assets has received Royal Assent. On January 15, 2009, Bill 1, An Act to amend the Supplemental Pension Plans Act and other legislative provisions in order to reduce the effects of the financial crisis on plans covered by the Act, received Royal Assent and introduced certain payment options in the event of insufficient assets when a pension plan was terminated or an employer withdrew as a result of the employer s bankruptcy or insolvency. One option was for members to accept a transfer of benefits and assets under section 98 of the SPPA (which could be reduced if the plan was not fully funded), while another was to apply for the payment of benefits through a pension paid by the Regie des rentes out of the assets of the plan, guaranteed for five years, which would be in lieu of purchasing an annuity from an insurer. Both of these temporary options were set to expire on January 1, On December 2, 2011, Bill 42, An Act to amend the Supplemental Pension Plans Act in order to extend certain measures to reduce the effects of the 2008 financial crisis on plans covered by the Act, received Royal Assent and extended the availability of these various payment options for another two years, until January 1, In British Columbia (Canada), Bill 16, the Family Law Act (FLA) has received Royal Assent, modifying the property division framework for pension division. Bill 16 passed on the third reading and received Royal Assent on November 24, The Bill replaces the previous Family Relations Act, extending rights and duties respecting property division to unmarried persons who qualify as spouses and modifying the property division framework to meet various recommendations from the British Columbia Law Institute respecting pension division. Under Bill 16, a spouse s entitlement under an annuity, pension, retirement savings plan, or income plan is included as family property pursuant to section 84 (in Part 5). Part 6 deals with Pension Division, including administrative matters. Although the main operating presumption in the FLA is of equal division of family property, the Supreme Court may on application order a different approach if it would be significantly unfair to divide benefits as required under Part 6. The government also may make regulations respecting the division of pension benefits, and various transitional rules would apply. Section 84 and Part 6 will be proclaimed into force by regulation. Asia The Japanese government s 2012 tax proposals include provisions affecting the retirement income of directors. Currently, retirement income is calculated as 50% of gross retirement allowances minus retirement income deductions. Under the pending tax proposal, directors with less than five years service would not be eligible for the 50% reduction. In related news, high-income earners (over JPY 15 million) would be subject to a JPY 2.45 million cap on the employment-income deduction. If passed by the Diet, these measures would be applicable to income beginning in Pensions in Japan may be reduced by 2.5% beginning in Pensions in payment are linked to changes in the inflation rate. Despite recent deflation, pensions were not reduced. If approved, the cut is likely to be phased in over several years. Copyright 2012 Aon Hewitt 2

3 Hong Kong may soon be one step closer to implementing employee choice of provident funds. The Mandatory Provident Funds Schemes (Amendment) (No. 2) Bill 2011, enhancing the regulation of sales and marketing activities of provident funds, was published in the official gazette in early December The Mandatory Provident Funds (MPF) Authority also is drafting a new Code of Conduct for the MPF industry, which it will release for consultation. If the Bill is enacted before the end of the current legislative session, employees will be able to transfer their contributions to a fund of their own choice at least once a year, effective November 1, Currently, employers provide employees with a choice of funds. Employers should begin to prepare for the additional administration that will be required under the Employee Choice Arrangement. The Filipino Bureau of Internal Revenue (BIR) issued guidance on the tax treatment of voluntary contributions to mandatory social programs. In Revenue Memorandum Circular No , the BIR confirms that voluntary contributions to the Social Security System, PhilHealth, or the Home Development Mutual Fund (Pag-Ibig) are not excludable from the gross income of the taxpayer and, hence, are not exempt from income and withholding tax. Only mandatory contributions receive tax-favorable treatment. Voluntary contributions made on or after July 1, 2011 are affected. Employers should review their benefit policies in the event that they have been making additional contributions to these funds on behalf of their employees. Europe In the United Kingdom, the Department of Work and Pensions (DWP) has announced that automatic enrollment enrolment obligations will be delayed for employers with less than 50 employees. The staging dates for employers with between 50 and 3,000 employees may be moved slightly to smooth out the transition although further details are not available. According to the Pensions Regulator s published guidance, the staging dates for employers with 3,000 or more employees in their PAYE scheme will be unchanged. It is expected that the end of the staging periods will be pushed to a later date, yet to be confirmed. If this were not done, then the time period over which the smaller employers have to be auto-enrolled would be squeezed, causing logistical problems for NEST. It seems likely there will be a corresponding extension to the transitional period during which lower defined contribution plan contributions may be made and existing employees do not need to be auto-enrolled into defined benefit/hybrid schemes. This would be consistent with the DWP s announcement indicating the rate of pension contributions will remain unchanged until all businesses have started automatic enrollment. The DWP has also issued a consultation on how the auto-enrollment thresholds will be set (including suggestions of possible thresholds). Further details are expected to be published in January. In the United Kingdom, the DWP also has announced that short service refunds will be abolished for defined contribution schemes. Recognizing that this will lead to an increase in small pension pots, it issued a consultation on possible approaches for dealing with those benefits. Options range from encouraging transfers to an automatic transfer system where small pots either are consolidated into a third-party scheme or move with the member from job to job. Copyright 2012 Aon Hewitt 3

4 In a separate development, Her Majesty's Revenue and Customs has issued draft regulations under which, effective April 6, 2012, funds of GBP 2,000 or less held in personal pension arrangements can be paid out as lump-sum payments to individuals age 60 or over, provided the member has not previously received more than one payment under this provision. Payments under these new proposed provisions can be made regardless of the value of the individual s total pension savings and in addition to any trivial commutation lump-sum payments or occupational pension scheme small pot lump-sum payments the individual may have received under other trivial commutation provisions. U.K. Chancellor Osborne s 2011 Autumn Statement, delivered at the end of November 2011, includes several pension-related measures. The State Pension Age (SPA) will be raised to age 67 between April 2026 and April 2028, earlier than planned by the previous government. Further details also were announced on how future increases in the SPA will be determined. The Statement included detailed measures to implement proposals (in the March 2011 Budget) that employers making asset-backed pension contributions not receive unintended excess tax relief. These apply from November 29, 2011, subject to transitional provisions. Draft legislation for Finance Bill 2012 has been published. The government also announced that it will not issue CPI-linked gilts in 2012/13, but will keep this under review. The U.K. Pension Protection Fund (PPF) has finalized its new framework for levies from 2012/2013. The main features of the new framework and the parameters for the levy are set out in the PPF s policy statement of May 2011 and its draft determination for 2012/2013. Under the 2012/13 draft Levy Determination, the risk-based levy scaling factor is 0.89, the risk-based levy cap is 0.75% and the scheme-based levy multiplier is %. The parameters in 2012/13 also are expected to apply for 2013/14 and 2014/15, but this will not be confirmed until the Levy Determinations for each of those years are finalized. The main deadlines for providing data for the 2012/13 levy will be in March/April The deadline for submitting scheme return information on Exchange for 2012/13 will be March 30, 2012 (and not a year prior to the start of the levy year, as in previous years). The main change from the draft Determination is an amended certification requirement for Type A contingent assets (group company guarantees). Trustees will now be required to certify that they have no reason to believe the guarantor(s) could not meet its full financial commitment under the contingent asset (the draft proposed that trustees must actively certify that the guarantor(s) will be able to meet their full commitment). The PPF will be carrying out its own analysis of the guarantor s strength and may ask schemes for evidence to justify this. The PPF also will now allow schemes to switch between the standard investment stress test and the bespoke version where there is a valid reason to do so, although it will take action to ensure that the PPF levy is not being gamed when a riskier investment strategy has been adopted. Copyright 2012 Aon Hewitt 4

5 Under the 2012 Budget Agreement, companies in Belgium would not be permitted to fund pensions for self-employed company directors via a book reserve. Pensions for these individuals would have to be externally funded through a pension fund or an insurance company within three years, and at that time a 1.75% tax would be payable. Additional contributions to the funded plan would be subject to the 4.4% group insurance tax. Also, the 80% rule for pension premiums would change (premiums are tax deductible only if the pension does not exceed 80% of final gross pay, based on a full career). The cap on deductions would be based on 80% of the highest pension of a civil servant. The new government reached an agreement on the budget at the end of November If passed by parliament, the changes would be effective January 1, Belgium s new coalition government may change eligibility requirements for early retirement. The early retirement age would increase from age 60 to age 62 beginning in Also, the number of contributions would increase from 35 years to 40 years. Individuals age 60 would be permitted to continue to retire early if age plus contributions equaled 102. Under Italy s latest austerity package, Save Italy, the minimum retirement age will increase; the number of contributions for an early retirement pension will increase; and the pension index will be frozen for some pensions. The Chamber of Deputies has passed the austerity bill; the Senate is expected to vote on it before the end of December The minimum retirement age will increase to age 66 for males and age 62 for females in The retirement age for females will continue to increase until it reaches age 66 in The minimum contribution period will increase to 42 years for males and 41 years for females in Pensions up to three times the minimum paid will be indexed to inflation in 2012; pensions above this amount will not increase. In 2013, only pensions up to two times the minimum paid will be indexed. Also, a contribution-based pension system will be introduced. Additional details on the austerity package will be reported once it has been signed into law. In Austria, the Law on Pensionskassen, the prevalent vehicle for pension plans, may be revised. Under a draft law, open for public consultation until January 2012, employees would be given a security pension or a life-cycle option, or they could transfer to an insurance-based Betriebliche Kollektivversicherung (BKV) a Company Collective Insurance Plan. The draft law would create new regulations on investment portfolios affecting the Veranlagungs-und Risikogemeinschaaft (VRG) company pools within a Pensionskassen that are expected to reduce the number of pools. Other changes include a reduction in the vesting period from three to five years and greater flexibility for employers with regard to contribution amounts. The Irish government s 2012 budget includes changes to Pay Related Social Insurance (PRSI) contributions and the Universal Social Charge (USC). With regard to PRSI, rental income, dividends, and other investment earnings would be subject to contributions. The current relief of 50% of employer PRSI on employee contributions to occupational pension schemes would be abolished. Employees earning less than EUR 10,036 would be exempt from the USC; currently, the income threshold is EUR 4,004. If passed, the changes would be effective January 1, Effective January 1, 2012, early retirement will be eliminated in Hungary. Individuals in receipt of an early retirement pension will continue to receive payment from the central budget rather than social security. The amount of the benefit will equal at least 150% of the minimum wage. Also effective January 1, 2012, foreign employees are exempted from contributing to Hungary s social security system only if the length of the assignment exceeds two years. The two-year exemption period begins January 1, 2012 even if the assignment began before that date. Copyright 2012 Aon Hewitt 5

6 Poland s new government proposes to increase the retirement age. The retirement age would increase to age 67 for both males and females. It would increase by one month every four months beginning in For males, the retirement age would reach age 67 in 2020; for females, it would reach age 67 by In related news, the government also proposes to change how pensions are indexed. Currently, the increase is based on annual average inflation and wage growth. The government wants to increase pensions by a fixed quota. It is not known when action will be taken on the proposal. Employers payroll costs will be reduced in Russia, effective January 1, The total contribution rate will decrease from 34% to 30% 22% to the Pension Fund, 2.9% to the Social Security Fund, and 5.1% to the Health Insurance Fund. The reduction in contributions will be effective for two years. The annual contribution ceiling will be RUR 512,000 in 2012 and RUR 573,000 in Income exceeding RUR 512,000 will be subject to a 10% Pension Fund contribution rate. The law reducing the contribution rate was passed by the Duma at the end of November 2011 and signed by President Putin shortly thereafter. Also effective January 1, 2012, employers in Russia must pay social insurance contributions for foreign employees. The requirement applies to foreign employees in Russia with an indefinite-term employment contract or a fixed-term contract of six months or longer. In Romania, a guarantee fund for second- and third-pillar pensions has been established. The goal of the new legislation is to protect the retirement savings of participants in the event the fund becomes insolvent. The Pensions Authority has appointed the directors of the guarantee fund, which will be financed by contributions from pension fund administrators and providers. The fund is expected to be operational in early In Bulgaria, the retirement age will increase beginning In December 2011, the parliament overrode a presidential veto of the reform bill. The retirement age will increase by four months every year, beginning in 2012, until it reaches age 65 for males and age 63 for females. Currently, the retirement ages are age 63 and age 60, respectively. The same bill also will increase the minimum pension by BGN 9, bringing the minimum pension to BGN 145 as of June 1, * * * * 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 6

7 About Aon Hewitt Aon Hewitt is the global leader in human resource consulting and outsourcing 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. 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 7