Aon Hewitt Legislative Reporting

Risk. Reinsurance. Human Resources.

Global Retirement Update 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.

Countries Covered in This Update Americas: Brazil, Canada, Chile, Mexico, and United States.

Asia Pacific: Fiji, India, Macau, New Zealand, Pakistan, and Timor-Leste.

Europe: Belgium, Czech Republic, Denmark, Estonia, European Union, Germany, Ireland, Malta, Monaco, Netherlands, Russia, Slovakia, Sweden, Switzerland, Turkey, and United Kingdom.

Middle East and Africa: Algeria, Israel, Palestine, and South Africa.

Action May Be Required Asia Pacific

Macau Employers will need to double their contributions to the Social Security Fund effective January 1, 2017.

Europe

Germany Employers should note that the German government published the long awaited draft changes to the occupational pension legislation in early November. The legislation is expected to be effective starting January 1, 2018. The draft legislation proposes many changes that will strengthen occupational pensions and thus the entire German pension system.

Monaco Employers should ensure that they are making larger contributions to social security as per the increases that took effect October 1, 2016.

Turkey Employers in Turkey should determine what actions they need to take in order to comply with new auto-enrollment requirements in 2017.

November 2016

Global Retirement Update | Aon Hewitt | November 2016 2

Middle East and Africa

Israel Employers should ensure they have a clearly defined and communicated retirement plan enrollment process in place for all new employees.

Palestine Employers will need to increase their contributions for social security old age, disability, and survivor benefits.

Recent Developments Americas

Brazil Ruling against benefit increase for early retirees who stay in the workforce.

The Supreme Court recently ruled that a person who had claimed early retirement benefits then rejoined the workforce and made additional social security contributions was not entitled to recalculation of benefits in light of the second period of employment. Over 180,000 lower court cases had awaited this judgment. Those few people who successfully argued for a retirement benefit review in the lower court must now repay the National Institute of Social Security (INSS).

Canada PRPP guidance.

On October 26, 2016, the Office of the Superintendent of Financial Institutions (OSFI) published the following related to the registration of pooled registered pension plans (PRPPs):

Instruction Guide—Registering a Plan as a Pooled Registered Pension Plan.

Instruction Guide—Applying for a Licence to be a Pooled Registered Pension Plan Administrator.

Frequently Asked Questions—Pooled Registered Pension Plans.

British Columbia solvency funding extension.

On October 25, 2016, B.C. Regulation 245/2016 (Order in Council 751) was deposited. This regulation amends B.C. Regulation 71/2015 in order to extend the period over which solvency deficiencies can be funded.

Previously, solvency deficiencies had to be amortized over a period not exceeding five years and each solvency deficiency was required to be funded separately and could not be combined with any other solvency deficiencies.

The amendment to the Regulation permits plan administrators, on submission of a written election to the Superintendent of Pensions (Superintendent) to consolidate all existing solvency deficiencies into one new solvency deficiency at the review date (Fresh Start). The amendment allows for the new solvency deficiency to be amortized over a period not exceeding 10 years (extended from the usual five-year requirement).

On October 26, 2016, the British Columbia Financial Institutions Commission (FICOM) published PENS 16-009, Extension of Solvency Deficiency Payment Period. This bulletin provides guidance to plan administrators in meeting the Superintendent’s requirements for accessing solvency funding relief provided by the amendment.

Source: B.C. Regulation 245/2016 PENS 16-009, Extension of Solvency Deficiency Payment Period

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Ontario Pension Advisory Committee rules.

Certain amendments from Ontario’s Bill 236 that amend the pension advisory committee (PAC) provisions in the Pension Benefits Act (PBA) have been proclaimed in force effective January 1, 2017.

The role of PACs will be to monitor plan administration, make recommendations to the administrator regarding the administration of the pension plan, and promote awareness and understanding of the pension plan.

On October 31, 2016, Ontario Regulation 351/16 was filed with an effective date of January 1, 2017. This regulation amends Regulation 909 in order to implement the new PAC provisions of the PBA.

The regulation requires plan administrators, on receiving notice, to assist in holding the vote to establish an advisory committee. If the vote is in favour of establishing a PAC, one shall be established. Plan administrators will also be required to assist with the operation of the committee once it is established.

An advisory committee that was established before January 1, 2017 will be exempt from the general composition requirements of a PAC for six months.

Source: Ontario Regulation 351/16

Target Benefit Plans Proposed for Federally Regulated Employers.

On October 19, 2016, the federal government announced proposed changes to the federal Pension Benefits Standards Act, 1985 (PBSA) to permit federally-regulated employers to offer target benefit plans. The proposed new target benefit regime is a welcome addition to the federal jurisdiction that would apply in a broad range of circumstances. Specifically, the new legislation would apply to both single employer (irrespective of whether there is a collective bargaining agreement in place) and multi-employer pension plans

Please click here for link to full text.

Chile Productivity Law expands AFP investment menu.

Chile has enacted the Productivity Law featuring measures to diversify investment options for the AFP pension funds. Investment in "alternative" assets should range between 5–15%. New options include investment fund bonds, as well as real estate and infrastructure assets. The Law went into effect on November 1.

Mexico Retirement savings incentive proposed.

The Ministry of Finance outlined the 2017 Economic Package, a set of tax proposals that will be added to the 2017 Budget legislation now before Congress. One provision would allow tax deduction on contributions to retirement savings funds "contracted collectively." These would be group schemes other than employer-sponsored pensions such as trade or professional associations, giving individuals without access to employer-sponsored pensions additional options for enjoying the advantages of a group scheme.

United States 2017 Cost-of-Living Adjustments.

The Social Security Administration (SSA) released the Social Security 2017 indexed figures on October 18, 2016. The SSA announced that there will be a 0.3% Cost-of-Living Adjustment (COLA) for 2017.

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Please click here for the Aon bulletin on 2017 Social Security COLAs.

IRS Releases Guidance on Pension Equity Plans.

On November 4, 2016, the Internal Revenue Service (IRS) released Notice 2016-67, which describes the applicability of the market rate of return limitation rules to a defined benefit plan that expresses a participant's accumulated benefit as the current value of an accumulated percentage of the participant's final average compensation, highest average compensation, or highest average compensation during a limited period of years (a type of plan often referred to as a pension equity plan). Notice 2016-67 addresses the application of the market rate of return limitation of Section 411(b)(5)(B)(i) and Section 1.411(b)(5)-1(d) to a pension equity plan that provides for implicit interest. Comments on the Notice are due by February 21, 2017.

IRS Notice 2016-67 is available here.

IRS 2017 Official Indexed Figures for Retirement Plans and Other Employee Benefit Plans.

The Internal Revenue Service (IRS) issued Information Release 2016-141 on October 27, 2016, providing the 2017 official indexed figures for retirement plans and other employee benefit plans. The IRS issued technical guidance detailing these items in Notice 2016-62.

Please click here for the full text.

DOL Releases Fiduciary Rule Guidance Focusing on Conflict of Interest Exemptions.

On October 27, 2016, the Department of Labor (DOL) released additional guidance on its fiduciary rule in the form of frequently asked questions (FAQs), expected to be the first of several FAQs in the upcoming months. The 34-question guidance primarily discusses conflict of interest exemptions and addresses the following areas:

Compliance, including compliance dates;

The best interest contract exemption, including: general questions, level fee fiduciaries, bank networking arrangement, Prohibited Transaction Exemption (PTE) 84-24 annuities, disclosures, and grandfathering; and

Principal transactions exemptions more broadly, including PTE 84-24

The guidance is available here.

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Asia Pacific

Fiji 2016–17 Budget features hiring incentives.

There were some notable measures in the 2016-17 Budget, including:

A 300% tax deduction on the wages of disabled workers employed for at least three years.

A 150% deduction on employer expenses for employee education programs leading to professional qualification.

A 200% tax deduction on wages of students employed up to three months per year in their field of study, up to six months for those apprenticing for course credits.

An increase to 200% for the deduction on the first year of wages of a first full-time employee.

These measures took effect on August 1 and all expire in 2020 except the incentive for hiring disabled workers which expires in 2022. The Budget also notes that the imminent Pensions Saving Act will expand the pension fund market into the private sector and broaden the choice of retirement income products.

India UAN verification requirement for EPF.

The Employees' Provident Fund Organisation (EPFO) has advised its regional offices to start strict enforcement of a process that has been pretty lax until now. Companies that cannot submit "e-KYC (Know Your Customer) verified" Universal Account Numbers (UAN) for new employees will not be able to submit EPF contributions on their behalf. Legitimate UAN numbers are needed for all stages of EPF operations including transfers and disbursement, but fewer than 30 million of the nearly 80 million EPFO subscribers have UANs.

New NPS investment options.

The Pension Fund Regulatory and Development Authority (PFRDA) has issued a circular introducing the separate asset class "A" (for alternative investments). Under class A, one may invest a total of 5% in:

Asset-backed securities and units issued by REITs (real estate investment trusts) regulated by SEBI (Securities and Exchange Board of India).

Residential or commercial mortgage based securities.

Alternative investment funds registered with SEBI.

Units issued by Infrastructure Investment Trusts regulated by SEBI.

Another PFRDA circular marks the launch of two new life cycle funds to automatically alter one's asset mix over time. The standard life cycle fund, which starts with a 50% equity investment limit and gradually lowers it, is now the Moderate Life Cycle Fund and complemented by both the Aggressive Life Cycle Fund which initially caps equity investments at 75% and the Conservative Life Cycle Fund which limits equity investments to 25%.

Macau Social Security contribution hike.

The Social Security Fund contribution is doubled, effective January 1, 2017. The total will rise from MOP 45 per month to MOP 90, retaining the 1/3 employee to 2/3 employer ratio, so employees will pay MOP 30 and employers will contribute MOP 60. Employer representatives are calling for equal contributions of MOP 45 each.

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New Zealand Pension reform campaign.

The Retirement Commission will be producing a set of videos to advance its retirement reform proposals:

Retirement age would rise from 65 to 67 over the course of 10 years.

The minimum residency period for immigrants to qualify for benefits would rise from 10 years to 25.

There would be incentives for job training, even preparation for new careers, for workers in their 50s to ensure that they do not leave the workforce prematurely.

The government's $1,000 "kickstart" KiwiSaver contribution that was abandoned last year would return.

Pakistan Consultation on draft voluntary pension system rules.

The Securities and Exchange Commission of Pakistan (SECP) recently closed a public consultation on draft amendments to the Voluntary Pension System Rules, 2005. These measures would tighten the regulatory framework for the VPS sector:

A trustee company would have to register with the SECP.

There would be new standards for staff qualifications and administrative systems in these companies.

Transferring an account from one pension fund to another would be accomplished in seven days, down from 21.

Pension fund managers would be obliged to advise participants on their options as they near retirement age.

Timor-Leste Parliament approves social security law.

Parliament has passed legislation on establishing a new contributory social security system. All workers will participate in a mandatory social security program with funding divided between workers and employers. The scope of coverage will include old age pensions, disability, and death benefits as well as maternity, paternity, and adoption leave. A committee review will precede formal final passage in Parliament.

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Europe

Belgium 2017 Budget

The Cabinet has reached agreement on the 2017 Budget. Among the highlights:

The 38-hour workweek would be aggregated on an annual basis, which would give more flexibility to employers.

All workers would be eligible for voluntary participation in a supplementary pension as of 2018.

The quota for voluntary overtime would rise to 100 hours in order to increase flexibility.

Telework and flexible work hours would be facilitated.

Workers would be able to accrue untaken leave.

Long-term disability coverage would increase emphasis on the path back to the workforce.

A "mobility budget" would allow workers to take an alternative travel benefit equivalent to the company car. An additional tax for the employers on fuel cards provided for company cars will be levied.

Czech Republic Employer early retirement contributions proposed.

The Cabinet is now reviewing the first draft of a measure that would set out exemptions to the prospective state retirement age of 65. The professions qualifying for early retirement would generally be those involving strenuous labor. The early retirement would be financed by employer contribution of 3-4% of gross wages into retirement accounts. Last June, the President signed a measure allowing coal and uranium miners to retire at age 56.

Estonia Social Security contribution cap debated.

A measure under consideration in Parliament would introduce a ceiling on the salary subject to social security contributions. The threshold would be 4.5 times the average median monthly salary, currently about EUR 3,451.50.

The measure in the 2017 Budget that would reduce the employer social security contributions from 33% to 32% over the next two years is also before Parliament. The International Monetary Fund (IMF) recently concluded its annual review of Estonia by urging the government to expedite the full cut.

Cabinet agrees on flexible retirement age.

After considering a variety of social security reform scenarios earlier in the year, the Cabinet has reached accord on a handful of measures:

The retirement age would be pegged to life expectancy from 2027. It would have reached 65 years and one month by that point.

A flexible retirement age formula would give workers a range of ages to choose from.

There would also be a variety of withdrawal options.

The Ministry of Social Affairs and the Ministry of Finance will collaborate on a blueprint for the reform and deliver it in the first half of 2017.

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European Union PEPP product pilots previewed.

The head of the European Insurance and Occupational Pension Authority (EIOPA) delivered a speech describing the "product pilots" it's preparing to develop for the Pan-European Personal Pension Product. The PEPP model for individual defined contribution schemes would entail EIOPA maintaining a centralized information system for easy comparison of PEPPS. The other product pilot would be a collective "Profit Sharing Product" with pooling of investments to minimize individual risk exposure. The speech also envisions a standard "simple and transparent" Defined Contribution Occupational Pension Scheme.

Germany Draft legislation to strengthen occupational pension benefits published

The German government finally published the draft changes to the occupational pension legislation in early November. The legislation is expected to be effective starting January 1, 2018. The draft legislation proposes many changes that will strengthen occupational pensions and thus the entire German pension system. Among the highlights are:

Introduction of true defined contribution (DC) plans (will only be permissible via bargaining agreements).

Allowing auto-enrollment with employees being able to opt out (will only be available via collective bargaining agreements).

The tax exemption on employer contributions would rise from 4% to 7% of the social security contribution ceiling (this was later changed to 8%) along with the removal of the top-up exemption of EUR 1,800 annually.

All contributions would vest immediately and the benefit would have to be taken as a lifetime annuity.

Introduction of a government allowance and exemptions of occupational pension benefits for the calculation of basic income.

Increase to the ‘Riester’ allowance and of tax-deductible contributions to occupational pension plans

Apart from a few exceptions, the intended strengthening measures apply only to the ‘Pensionskasse’, ‘Pensionsfonds’, and ‘Direct Insurance’ vehicles.

Ireland PRSA loophole targeted.

The Finance Bill introduces a measure that would end tax-planning opportunities with Personal Retirement Savings Accounts (PRSAs). Many PRSA holders now make no withdrawals in order to avoid an "imputed distribution regime," which assumes that at least 4% is withdrawn per year and levies both income tax and universal social charge on that amount. Under this measure, all PRSA will be taxed as if the minimum amount were withdrawn annually from age 75.

Malta Highlights of the 2017 Budget.

Malta's 2017 Budget includes a number of relevant measures:

In 2017, pensions of up to EUR 10,500 for people age 61 and up would be tax-exempt. In 2018, the threshold would rise to EUR 13,000.

Employer contributions to pension schemes would be tax deductible for the employer and there would be an additional EUR 150 deduction for each EUR 1,000 contributed. Employer contributions will not be taxable for the employee. The employee contributions would be tax deductible up to EUR 150.

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Employers offering free "organized transportation" benefits to their workers may deduct 150% of the scheme's expenses. There is an annual ceiling of EUR 35,000 for companies providing the service solo and EUR 50,000 for those collaborating with another company.

Disability pensions would be based on degree of disability, with the benefit gradually rising to the minimum wage for the most severely disabled. Disabled people who have returned to the workforce may be eligible for some level of benefit.

There will be a consultation on a proposal to let parents use part of sick leave to care for sick children.

The government will negotiate with social partners on the terms of a medical leave for people with cancer.

To help the frail elderly stay out of nursing homes, there would be an annual subsidy of up to EUR 5,200 for home care workers.

Monaco Employer social security contributions rise.

An incremental rise in employer social security contributions took effect on October 1, 2016. The rate for the pension benefit rose from 7.93% to 7.95% while the levy for sickness benefit, family allowance, and salary guarantee fund rose from 15.4% to 15.55%. The unemployment benefit contribution and employee contributions remain unchanged.

Netherlands Flexibility on pension indexation in a merger.

The Ministry of Social Affairs and Employment has indicated that it will introduce some flexibility to its rules on limiting pension fund indexation to what their funding level allows. At the request of social partners, there will be exceptions for higher indexing in specific circumstances, particularly for benefit harmonization in mergers, but also for other changes to pension schemes that warrant member compensation. This would be allowed "under strict conditions" for a "clearly delineated" population. Employers would have a 10-year limit on this relaxation. A ministry decision detailing this plan will be gazetted soon.

Russia Guidance on employer deduction of social security contributions.

The Russian Federal Tax Service has posted guidance on employer deduction of social insurance levies. Their deduction of social insurance contributions is limited to 50% of their total corporate income tax liability.

Voluntary retirement savings plan in development.

Soon after announcing an extension of the freeze on second-pillar contributions, the government started previewing a voluntary retirement savings scheme. A collaboration between the Finance Ministry and the Central Bank, this scheme would have a conservative investment menu and a minimum guaranteed rate of return. There would be some allowances for preretirement withdrawals and one's heirs would be able to inherit the account's assets. The plan is expected to launch in 2018.

Slovakia Health, social security premiums to rise.

The employee health insurance and social security premiums were recently increased:

The President has signed an amendment to the Health Insurers Act that raises the contribution for state policyholders from 4.3% to 4.96%.

The Health Ministry has removed the EUR 4,290 per month cap on salary subject to health insurance contributions.

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From 2017, the salary cap for social security contributions will rise from EUR 4,290 to EUR 6,181.

Sweden New pension solvency rules proposed.

The Financial Supervisory Authority has proposed a refinement of the solvency rules for pension fund managers. The draft revision of its "traffic light" model would set stricter capital requirements for pension fund managers and there would be tougher assessments of the risk exposure under some investment instruments. Stakeholders are invited to test the report in the new Excel format and to share feedback by November 18, 2016. The FSA aims to introduce the new system in April 2017 for reporting on the first quarter of 2017.

Switzerland Second-pillar minimum interest rate drops.

As expected, the Federal Council took the BVG Kommission's cue and announced that the minimum interest rates for mandatory occupational defined contribution schemes will drop from 1.25% to 1% on January 1, 2017. The Council attributed the reduction to interest rate cuts and stock market performance.

Turkey Guidance on mandatory pension system.

The Under Secretariat of the Treasury has released Automatic Participation System Guide for Employers to help employers comply with the mandatory individual pension system under Law No. 6740, which comes into force on January 1, 2017. The documents clarify some minor issues and enumerate employer obligations under this system:

Employers must select a pension company, factoring in specific criteria including service quality and deductions. The initial pension company cannot be changed for two years and there is a one-year minimum for subsequent contract switches.

Employers will draw up contracts with pension companies detailing the administrative roles of both parties. Employers may transfer any role to the company except provider selection and deduction of contributions to the pension company.

The employer automatically enrolls employees, offers them a menu of investment options, and selects a default fund for those who do not choose one.

Employers deduct contributions from payroll and transfer them to the pension company. They face penalties for late or incomplete contributions.

The employer may not pay contributions on an employee's behalf and is invited to direct contributions into an employer group pension contract (PPS).

The Council of Ministers has yet to set a minimum size threshold for affected enterprises.

United Kingdom Finance Act 2016 receives Royal Assent.

The Finance Act 2016 received Royal Assent on September 15. Provisions for the lifetime allowance (LTA) have already been brought into force, including: the reduction in LTA to £1 million from April 6, 2016, transitional protection in relation to that reduction (Fixed Protection FP16 and Individual Protection IP16), and provisions to increase LTA in line with CPI from 2018/19. Other provisions in the Act can now take effect, which are generally intended to simplify existing provisions or ensure the legislation works as intended, particularly in relation to the DC flexibilities. Members may apply online for the new protections.

Please click here for the full text on Finance Act 2016.

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PPF compensation cap consultation.

The government is consulting on amendments to increase the PPF compensation cap for long-service members. This will increase the standard cap by 3% a year for each year of service in excess of 20 years, up to a maximum of twice the standard cap. The amendments are likely to take effect in April 2017.

Please click here for more information.

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Middle East and Africa

Algeria Bill would hike retirement age.

While Algeria's retirement age is set at 60 for men and 55 for women, many leave the workforce much earlier because one is entitled to full retirement after 32 years of work. The Labour Ministry and social partners reached an accord this summer on removing the early retirement option. The bill is now before the National Assembly. Assuming it is adopted, the Labour Ministry will then issue executive decrees listing those strenuous occupations that will still qualify for early retirement.

Israel Default Retirement Plans—Automatic and Self-Enrollment.

In November 2016, a new regulation will come into effect that obliges employers to automatically enroll employees into a default pension plan if the employee has not completed self-enrollment to a plan of their choice.

Employers must ensure that all new employees have completed self-enrollment in a retirement plan of their choice within 60 days and that the first contributions to the employee’s chosen plan are paid within three months from the start of employment.

If a new employee does not complete self-enrollment, the employer must enroll the employee into the employer’s nominated default pension plan and make deductions into that plan by the end of the third month of employment.

Employers can nominate one of the providers that have been designated by the Regulator or a provider of its own choice. If an employer chooses to nominate a provider of its own choice, it will need to complete a formal tender process that has been defined by the Regulator.

Aon strongly recommend that employers have a clearly defined and communicated retirement plan enrollment process in place for all new employees.

Final details on how employers formally nominate their chosen default plan provider will be released later in November.

Palestine Social Security law revised.

The President has ratified a revision of the new Social Security Act. There were some notable changes:

The contribution for old age, disability, and survivor benefits shifted from employee 7.5%/employer 8.5% to 7%/9%.

The minimum pension rose from 50% of the minimum wage to 75%.

The coefficient for the pension benefit formula increased from 1.7% to 2%.

The government is now expressly responsible for the Social Security Fund's commitments.

The contribution period before one is entitled to maternity leave is halved to three months.

A man may now inherit his wife's pension.

A tripartite Social Security Authority board of directors will now be appointed.

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South Africa Consultation on unclaimed benefits.

The South Africa Revenue Service (SARS) is holding a consultation on the Draft Interpretation Note on the tax treatment of unclaimed benefits from retirement funds. Before March 1, 2009, this benefit was understood to have accrued for tax purposes to the member on the date that he or she became eligible for the benefit. Since that date, accrual is deemed to occur when the person actually takes the withdrawal. Stakeholders may submit their comments no later than November 30, 2016.

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© 2016 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 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.