Global Retirement Update

Transcription

1 Global Retirement Update October 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 Mexico The Commission on Retirement Savings (CONSAR) has issued new rules for registered pension plans. The new rules must be followed if employer contributions to a plan are not to be considered part of an employee s pay. As of the 2012 registration (to be completed before May 2013), employers must provide CONSAR with a file including employee names, employee status, federal tax identifiers, social security numbers, and personal identification numbers (clave única de registro de población, CURP). Puerto Rico The Department of Treasury published Administrative Determination 12-13, clarifying the deduction limit to qualified defined benefit pension plans. Contributions made by dual-qualified or Puerto Rico-qualified plans are not subject to the 10% excise tax on nondeductible contributions in the following circumstances: Comply with the minimum funding standards of U.S. Code Sections 412, 430, 431, and 432, or the parallel provisions in ERISA Sections 302 to 305; Avoid the provisions related to the funding-based limits on benefits and benefit accruals of U.S. Code Section 436 or the parallel provision of ERISA Section 206(g); Avoid U.S. Code At-Risk Status for purposes of Code Section 430(i) or the parallel provisions of ERISA Section 303(i); Avoid the requirements of ERISA Section 4010; and Maintain a plan 100% funded. The clarification was issued to create incentives for the funding of qualified pension plans. Copyright 2012 Aon Hewitt 1

2 Recent Developments Africa South Africa s National Treasury published a technical paper on improving tax incentives for retirement savings. The tax treatment of retirement plan contributions would be amended as follows: Employer contributions to a retirement plan or for life and disability coverage would be considered a taxable fringe benefit, including administrative fees; Employees under age 45 would be permitted to claim a 22.5% deduction of employment income for employer and employee contributions to a retirement plan, up to a maximum of ZAR 250,000 per year; Employees age 45 and over would be permitted to claim a 27.5% deduction of employment income for employer and employee contributions to a retirement plan, up to a maximum of ZAR 300,000 per year; Low-income earners would be permitted to claim a maximum deduction of ZAR 20,000; and Any tax-deductible contributions for retirement plan contributions not used in one tax year could be rolled over to the next tax year. The technical paper is open for public comment through November 30, Americas The U.S. Pension Benefit Guaranty Corporation (PBGC) released a notice providing information on the upcoming premium filing instructions for The notice is for plan administrators and other practitioners that prepare premium filings and submit them to PBGC via My Plan Administration Account (My PAA). PBGC indicates this will be the last time it sends a paper notice to provide premium instructions and related reminders. Future notices will be posted on the PBGC website or sent by . The notice notes the changes to 2013 premium rates made by the Moving Ahead for Progress in the 21st Century Act (MAP-21). It also addresses other changes expected for 2013, including: revocation of the Alternative Premium Funding Target election; breakdown of the total Premium Funding Target; additional contact information; plan effective date; premium credit; and elimination of data items. PBGC expects to post the 2013 premium instructions on its website by January The Quebec (Canada) Court of Appeals ruled that Samoisette v. IBM Canada ltee, a class action lawsuit involving bridge benefits, will be allowed to proceed. In 2006, IBM Canada Inc. amended the defined benefit (DB) plan offered to its employees at Bromont to terminate bridge benefits for members retiring after December 31, 2007, and to amend its health insurance plan by stopping access to the health care allowance at age 65 (rather than at death). In 2008, the appellant brought a motion to certify a class action on behalf of all employees who would be disadvantaged by these changes. Certification was refused by the Quebec Superior Court, because nullification of the clauses allowing the employer to unilaterally alter the plan terms had not been requested, and because the employer, in making the amendments in dispute, had not abused its power. Copyright 2012 Aon Hewitt 2

3 The appellant appealed and in Samoisette v. IBM Canada ltee, the Quebec Court of Appeal held that, as the various requirements in clause 1003 of the Quebec Civil Code were satisfied, the class action should be certified and allowed to proceed on behalf of all employees of IBM s plant in Bromont who were members of the DB pension plan on January 1, 1995 and eligible for early retirement after December 31, The lower court, in denying certification, had embarked on a substantive assessment of the members claims. The arguments involving abuse of power and the nonapplication of provisions to reduce vested benefits were sufficiently serious to warrant consideration at trial. Neither was it clear that, to be successful, the members had to request rescission of the amending provisions. Rather, they seemed merely to be seeking a declaration that the impugned amendments applied to employees hired after January 2006 and not to themselves. As a result, the members were seeking compensation for withheld benefits; their alleged damages were appropriately described and seemed sufficiently real and existing to allow for certification of a class proceeding in this case. In British Columbia (BC) (Canada), Bill 38, which repeals and replaces the existing Pension Benefits Standards Act, received Royal Assent. Bill 38 represents a major overhaul of the province s pension legislation based on the comprehensive Joint Expert Panel on Pension Standards process and consultations and further harmonizes BC and Alberta law in this area. Alberta expects that its new legislation will be passed in the fall, and in both provinces many details of the new legislation will be prescribed in accompanying regulations, which are currently being jointly drafted. The governments expect to have draft regulations ready for limited public consultation by the middle of 2013, with input primarily sought for target benefit funding rules, disclosure provisions, and jointly sponsored plans. It is expected that Bill 38 may be promulgated effective January 1, 2014, although no official effective date has been announced. The Greater Brazil program, which provides employers with relief on social security contributions will be extended from 14 to 40 industries, effective January 1, Currently, the 20% social security contribution paid by employers has been replaced by a 2.5% tax on gross income for companies that exclusively provide information technology or information, communication technology, and call center services. For companies that manufacture clothes, leather, shoes, and other specified items, the social security contribution is replaced by a 1.5% tax on gross income. The replacement tax on gross income is effective from December 1, 2011 through December 31, As of January 1, 2013, the tax on gross income will be 1% to 3.5%, depending on the industry. Additional industries include transportation, toy manufacturing, and food processing. Effective November 23, 2012, one of the lifestyle pension funds (Siefores) in Mexico will be eliminated. Currently, individual pension account contributions are automatically invested in one of five lifestyle funds (Siefores) intended to match investment horizons with appropriate levels of investment risk. Investment in the funds is determined by age group, with investment options for each fund becoming progressively more conservative for older age groups. Individuals may transfer to a Siefore designed for an older group of investors, but the reverse is not permissible. CONSAR announced that Siefore 5, a fund for employees age 26 and under will be merged with Siefore 4, a fund for employees age 27 to age 36. Copyright 2012 Aon Hewitt 3

4 Asia Singapore s Central Provident Fund (CPF) will extend the minimum 4% annual interest rate for Special, Medisave, and Retirement Account holders through the end of As of 2014, the rate will be pegged to the 12-month average yield of 10-year Singapore government securities plus 1%, subject to the statutory minimum rate of 2.5%. The 4% interest rate has been in place since It was scheduled to expire at the end of 2009, but due to uncertainty in the global economy, the government extended the rate. Malaysia s 2013 budget includes provisions affecting the taxation of lump-sum gratuities paid at retirement or the termination of employment. The gratuity would be spread equally over the period of employment if employment is less than four years, or over five years if employment is more than four years (currently, five years and six years, respectively). Also, individuals who withdraw contributions to a private retirement plan would be subject to a final 8% withholding tax. If passed, the changes would be effective January 1, Europe The U.K. Pension Protection Fund (PPF) published its consultation on the calculation of the levy, including a draft of its formal Levy Determination. The PPF states that plans whose risks move in line with the average shift in risk over the year to March 28, 2013 can expect to see a levy bill in at a similar level to their invoice. Also, the PPF warns that levies cannot continue to be held down in future years. If current market conditions continue, the PPF expects to see further increases in levies in and thereafter. When the parameters for the calculation were set last year, they were expected to apply for three years, until However, the PPF has concluded that there are now compelling reasons for change (plans are generally in a worse funding position than in the previous year) and is therefore proposing to make two amendments to its parameters reduce the risk-based levy scaling factor from 0.89 to 0.73 and reduce the plan-based levy multiplier from % to %. Plans can now gauge the impact of the new scaling factors on their potential levies and consider appropriate mitigating action, although exact estimates will not be possible until market conditions and D&B scores up to March 28, 2013 are known. In the United Kingdom, the Department of Work and Pensions (DWP) has launched a consultation on the automatic enrollment thresholds that will apply for the tax year. The proposals are: GBP 9,205 for the automatic enrollment trigger (currently GBP 8,105) aligned with the PAYE threshold; GBP 5,720 (projected value) for the lower limit on qualifying earnings (currently GBP 5,564) aligned with the Lower Earnings Limit; and GBP 41,450 for the upper limit on qualifying earnings (currently GBP 42,475) aligned with the Upper Earnings Limit. The consultation closed on October 17, Copyright 2012 Aon Hewitt 4

5 The U.K. Pensions Regulator has launched a consultation on proposed changes to its Codes of Practice and accompanying guidance on reporting late payment of contributions to defined contribution occupational and personal pension plans. It also has issued drafts of accompanying guidance to trustees and managers and proposes to issue guidance to employers. With the introduction of automatic enrollment, the Regulator has reviewed these codes to ensure that they remain appropriate for the changes to the pensions landscape ahead. Proposed changes include: Adding practical guidance on the legal requirements for payment schedules (trust-based plans) and direct payment arrangements (contract-based plans); Issuing guidance for employers, particularly those setting up a plan for the first time, on their responsibilities in maintaining the flow of contributions; Clarifying the Regulator s expectations of trustees in monitoring payments due and obtaining the information needed to check the amounts; To encourage early and repeated intervention in order to recover late contributions, requiring at least three contacts by the trustees or provider, before the employer s failure to pay is reported to the Regulator; and Requiring reporting to the Regulator and the members if the trustees identify that the employer is unwilling to pay, rather than simply after 90 days. If a contribution remains outstanding for 120 days, this may be taken as evidence of unwillingness to pay. However, trustees and managers are encouraged to notify members at an earlier stage. The consultation lasts until December 6, In the United Kingdom, the Treasury (HMT) announced an agreement between the U.K. and U.S. governments on the implementation of the Foreign Account Tax Compliance Act (FATCA). In Annex II, the agreement sets out those U.K. institutions considered to be low risk and, therefore, exempt from the tax penalties for those that fail to meet the reporting requirements. The exemptions include Retirement Funds, as defined under the U.S./U.K. double taxation agreement. Legal advisers have indicated that this should include occupational and personal pension schemes and annuity products (although possibly not life cover only plans). Retirement Funds are designated as exempt beneficial owners and are not required to report. In addition, certain accounts and products held by U.S. persons that are maintained by a U.K. financial institution are designated as exempt products and so are not reportable. This applies to (1) registered pension plans; and (2) pension arrangements where the annual contributions are limited to GBP 50,000 and funds contributed cannot be accessed before age 55 except in circumstances of ill health. Her Majesty s Revenue and Customs (HMRC) subsequently commenced a consultation on implementing the agreement. Draft legislation will be published later in Copyright 2012 Aon Hewitt 5

6 The German government has announced the 2013 earnings ceiling for the old age, survivors, and disability pensions. The monthly earning ceiling for the West is expected to increase from EUR 5,600 to EUR 5,800 (EUR 69,600 annually) and in the East, from EUR 4,800 to EUR 4,900 (EUR 58,800 annually). The annual earnings ceiling for sickness, maternity, and medical benefits is expected to increase from EUR 45,900 to EUR 47,250 (same ceiling applies in West and East). Germany s Federal Ministry of Finance has introduced a draft law to increase the transparency of the Riester pension. Under the Riester program, the government provides financial incentives for voluntary retirement savings. Employees are entitled to request that their employers contribute a portion of their salary (up to 4% of their salary subject to the social security contribution ceiling) to the company pension plan. Employees also can request that pension plans financed by direct insurance, Pensionskasse, and Pensionsfonds meet all requirements to qualify for the Riester-Rente government grants. There is no requirement for employers to contribute. Alternatively, employees can make their own arrangements for retirement savings without involving their employer. The government proposes that a product information sheet be created that would include fees, investment risk, and expected rate of return. The cost of transfers to a new fund would be based on 50% of the amount transferred. Also, the tax deduction that could be taken in lieu of a government bonus would increase. If passed, the changes would be effective in 2013 and limited to new contracts. In the Netherlands, the caretaker cabinet presented measures to help pension funds put their financial position back in order in an accelerated and responsible manner. The Central Bank (DNB) will adjust the actuarial interest rate for pension funds using the ultimate forward rate (UFR). As of September 30, 2012, the UFR is used to determine the value of pension fund liabilities in 20 to 60 years time. In 2013, pension funds will be given a one-time exemption from the requirement to raise premiums in the event of a funding shortfall. Also, pension funds may spread pension reductions across several years, capping the reduction at a maximum 7% per year. Pension funds that want to spread reductions over time must meet the following conditions: 1) agree to raise the pensionable age used to calculate pension right accruals from age 65 to age 67 in 2013; 2) agree to factor further increases in life expectancy into existing pension rights; and 3) agree not to increase pension rights until the solvency ratio reaches 110%. In related news, the Dutch Actuarial Society published its forecast mortality tables for 2012 to According to the Society, changes in life expectancy are expected to increase pension liabilities by 1%, depending on the interest rate assumption used. The two leading political parties in the Dutch parliament have agreed to raise the state pension age earlier than previously planned. Under the agreement, the current state pension age (age 65) would increase by one month each year for the next three years, three months each year for the following three years, and four months each year thereafter. In 2018, the state pension age would be age 66 and in 2021, it would be age 67. As of 2022, it would increase according to life expectancy. According to the terms of a previous agreement, the state pension age would increase to age 66 in 2019 and age 67 in 2023; it would increase according to changes in life expectancy as of Copyright 2012 Aon Hewitt 6

7 As of January 1, 2013, employees in Denmark may no longer take deductions for contributions to specified pension plans. The change applies to private plans and plans offered by employers. A transition period will be created for plans offered through collective agreement. A maximum of DKK 27,600 may be contributed to a plan tax free; any contributions in excess of this amount will be subject to a 20% tax. The change is included in a bill passed by parliament at the end of September Large pensions would be subject to a new surtax in Finland. The surtax would be 6% on pension income exceeding EUR 45,000 after the pension deduction is taken. The Swiss Federal Council announced 2013 increases in the old age, survivors (AHV/AVS), and disability (IV/AI) pensions. The amount of the minimum pensions for both systems will increase from CHF 1,160 to CHF 1,170 per month; the maximum pensions will increase from CHF 2,320 to CHF 2,340 per month. Supplementary benefits to cover basic needs will increase from CHF 19,050 to CHF 19,210 for individuals, from CHF 28,575 to CHF 28,815 for couples, and from CHF 9,945 to CHF 10,035 for orphans. The increases are effective January 1, The Spanish government announced that social security pensions will increase by 1% in 2013, and it plans to pass new measures to make early or partial retirement more difficult. Economic analysts expected pensions to be cut or frozen at their current level so the government can more quickly balance the budget. The government maintains, however, that additional cuts are not possible, and it will increase pensions in relation to changes in the cost of living. In related news, officials from the Ministry of Labor and Social Security admit that existing policies on early and partial retirement are not working and that 50% of all retirements occur before age 65. The Ministry is expected to release its plans to change these policies by the end of Greece s latest austerity package includes provisions affecting retirement. The latest proposals are included in the package presented to the troika (European Commission, European Central Bank, and International Monetary Fund) as a precondition to the receipt of the next tranche of aid and a two-year extension in deficit reduction targets. The retirement age would increase from age 65 to age 67. Pensioners receiving more than EUR 1,000 per month would have their pensions reduced, and the 13 th month pension would be eliminated. Czech President Klaus vetoed the pension bill that would have created a second-pillar system. Under the bill, employees could have voluntarily participated in the second pillar. For those who chose to participate, 3% of the first-pillar contribution would have been transferred to their second-pillar account if they agreed to contribute an additional 2% of pay. President Klaus claimed that this was an inauspicious time to introduce this legislation given the financial crisis in the European Union and the lack of political consensus. The Senate vetoed the bill and the Chamber of Deputies overrode the veto. The Slovak government announced the fixed-sum increase in social security pensions for Old age pensions will increase by EUR per month; the disabled will receive an increase of EUR 5.79 and EUR 10.15, depending on the degree of disability. Survivors will receive an additional EUR 6.99 per month, and the solo orphan s pension will increase by EUR 3.88 per month. The fixed sum is 3.05% of the average pension paid at the end of June Copyright 2012 Aon Hewitt 7

8 * * * * 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 8

9 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 9