Aon Global Retirement Quarterly Insights January to March 2018
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Aon Global Retirement Quarterly Insights
January to March 2018
Aon Global Quarterly Insights is a quarterly publication highlighting the main requirements, proposals and opportunities affecting sponsors of retirement plans.
We highlight the latest developments affecting the design, financing and operations of employer-sponsored plans, as well as changes to State pension provision.
We also include an overview, by region, of earlier topics that remain live, key trends for employers and upcoming opportunities for knowledge sharing.
Employers continue to focus on cost-effectiveness across: Legislators main areas of focus continue to be:
More effective defined contribution provision Broader mandatory provision and/or risk-sharing or defined contribution plans
Lower risk defined benefit funding and investment Some adjustments to defined benefit funding or investments
Improved plan operations and governance Stronger governance and employee communications
Later retirement ages and/or higher social security contributions cost
In the latest period, pensions legislators have been most active in Canada, the UK, Ireland, Japan and Poland.
Employers in Poland should consider the type of provision they wish to give as a new national pension plan is introduced.
The UK and Canada focus is mainly on pension security through funding rules and their application.
Japan looks at the quality of fiduciary governance of DC plans.
Focus in Ireland is on increasing the provision of pensions combined with planned changes to State provision.
Throughout the document we highlight the need for action with three colours in common with our popular global risk dashboard.
Requirements, developments that need your immediate attention, are highlighted in red.
Proposals, developments that are not finalized yet but important enough to bring to your attention, are identified in amber.
Opportunities, developments that present an opportunity to improve the cost-effectiveness of your plans, are identified in green.
Underlined text is a link for more details on the topic.
If you have questions please contact your Aon consultant or email global.retirement.mailbox@aon.com
Please also use this mailbox to let us know how we could improve the ways in which we update you on new retirement topics of importance to you.
This document should not be construed as advice or opinions. The comments are based on preliminary analysis of publicly
Prepared by Aon available information and are provided on an “as is” basis, without warranty of any kind. Aon disclaims any legal liability to any
person or organization for loss or damage caused by or resulting from any reliance on this content. Aon reserves all rights to
Consulting | Retirement and Investment the content of this document.Contents
Main developments in January to March 2018:
Global overview
Developments affecting:
Design of retirement plans
Financing of retirement plans
Operation of retirement plans
State pension provisions
Ongoing key areas of focus for employers:
Global overview
Areas of priority focus in:
North America
UK and Ireland
Continental Europe
Asia Pacific
The rest of the world
Appendix: Further details on the main developments in January to March 2018
Aon | Global Quarterly Insights | Q1 2018 2 Requirements
Main developments in January to March 2018
Proposals
Opportunities
United Kingdom: Ireland: Rest of Europe:
Regulator’s Annual Statement Auto-enrolment from 2022 Croatia: Broad pension reforms
Increased protection for members Various changes to State pensions Czech Republic: Proposed new 2nd pillar plans
DC plan harmonisation rules Finland: Flexibility in return of premiums
New mortality tables Germany: Italy: Implemented early retirement loan legislation
Accounting for DC plans Poland: Finalised auto-enrolled PPK legislation
Canada: Increases to State pensions Spain: Cash-out option for long-service employees
Manitoba: Risk-sharing consultation Sweden: Increases to state pension age
Manitoba: Solvency funding consultation Turkey: Investment manager asset limits
Ontario: Pension security proposals
Québec: Proposals to stop design changes
Québec: Final funding (& other) regulations
EU/EEA:
Annual reporting from 2019
Reduced tax on Danish property
United States: Rest of Asia:
Opportunities from tax reform China: Contribution and vesting limits
Hong Kong: Contribution increases
Japan: DC quality requirements
Pakistan: Pre-retirement death benefit
South Korea: Increased funding target
Vietnam: Equalized Social Security
Latin America: India:
Brazil: Retirement age changes postponed Doubled tax-free gratuity
Chile: Proposed private pension reforms New hires contribution subsidy
Peru: Change to annuity calculations Increased salary ceiling
Various: Marriage equality ruling Increase equity holdings Australia:
Africa: Risk-pooling exploration
Morocco: Fund transfers permitted Member-outcomes focus
Global:
Zambia: Three-pillar proposal
New IAS19 special events calculation
Aon | Global Quarterly Insights | Q1 2018 3Key design-related updates from the quarter
Requirements
Proposals
Opportunities
Country Measures Changes
The Inter-American Court of Human Rights (IACHR) has ruled in favor of marriage equality in a case brought by the Costa Rican government. This
Americas Marriage equity ruling
could have much more than a ripple effect in South and Central America as 19 other nations have agreed to abide by IACHR decisions.
Blueprint for a new The Finance Minister announced that the 2018-19 Budget will feature a blueprint for a universal pension scheme covering the private sector. The
Bangladesh
pension system benefit would be received as an initial lump sum then a monthly annuity deposited into one's private account.
On January 10, 2018, the Ministry of Finance announced a consultation on a review of The Pension Benefits Act (PBA). The consultation includes
Manitoba risk-sharing
Canada target benefit pension plans and shared risk pension plans; locking-in provisions; compulsory pension plan membership; division of pensions on
plans
relationship breakdown.
Québec: Prohibit The Quebec government is concerned about disparity in treatment clauses based on date of hire for pension and group insurance plans, and it is
Canada
variation by hire date considering prohibiting such clauses. Please see the Aon paper available here for more details.
Changes proposed to The new administration plans to unveil its pension reform plan in the first half of this year. Under measures broached so far: minimum retirement
Chile
private pensions benefit and target EFP pension would rise by 40%; a 4% employer contribution would be introduced for the AFP.
Design
Measures for the Management of Enterprise Annuity Funds published with effect from February 1, 2018, include: reduction in maximum employer
Contribution and
China contribution from 8.33% of previous year's total salary to 8%; total contribution limited to12%; EAF termination rules; maximum vesting period of 8
vesting limits
years.
Czech Talks on reforms in
A tripartite council of government officials and social partners recently convened to discuss the Prime Minister's pension reform agenda.
Republic the pension system
MPF contribution The Mandatory Provident Fund Scheme Authority (MPFA) is preparing its quadrennial adjustment of the minimum and maximum salary thresholds
Hong Kong
thresholds for the 5% employer and employee contributions to an MPF scheme. The formal proposal is due by July 1, 2018.
Proposed change to A Pension Fund Regulatory and Development Authority of India (PFRDA) concept paper recommends raising the equity investment cap from 50%
India
equity investment cap to 75% for "active choice" investors in the National Pension System (NPS).
Tax-free gratuity Both houses of Parliament have now approved the Payment of Gratuity (amendment) Bill which will double the maximum tax-free gratuity payment
India
payment doubled to Rs 20 lakh (US $30,800).
Aon | Global Quarterly Insights | Q1 2018 4Key design-related updates from the quarter - continued
Requirements
Proposals
Opportunities
Country Measures Changes
Loans to enable early Early introduction of the planned early retirement instrument that allows, until the end of 2019, employees ages 63 years or more and with at least
Italy
retirement 20 years Social Security contributions can request a loan to enable a temporary annuity until retirement age.
Pre-retirement death The Securities and Exchange Commission of Pakistan (SECP) has updated Voluntary Pension System (VPS) rules, incorporating how benefits
Pakistan
benefit are transferred to a surviving spouse when a member dies before retirement age.
Design
Finalised information In February the Ministry of Finance announced the final legislation on Employee Capital Plans (PPK). Companies have the opportunity to think
Poland
on PPK about these plans well in advance, the first enrollment date is expected to be January 1 2019 for companies employing more then 250 people.
Changes to the tax treatment: contribution limit defined contribution plans the lesser of the maximum under U.S. 415(c) ($55,000 in 2018) and
Puerto Rico Pensions tax reform
annual salary; lump-sum distributions classified as ordinary income; streamlined coverage testing for dual-qualified (Puerto Rico/U.S.) plans.
An early withdrawal window, introduced to Tax Qualified pension plans, enables employees to cash out the accumulated/economic rights
Implement possible
Spain corresponding to the contributions made by employer and employee with at least ten years’ service. Besides the withdrawal window, the Royal
withdrawal windows
Decree also introduces reductions to maximum commissions for deposit and management of the Pension Funds.
Aon | Global Quarterly Insights | Q1 2018 5Key financing-related updates from the quarter
Requirements
Proposals
Opportunities
Country Measures Changes
Manitoba solvency On January 10, 2018, the Ministry of Finance announced a consultation on a review of The Pension Benefits Act (PBA). The consultation includes
Canada
funding four options for solvency deficiency funding rules.
Following the announcement of a new funding framework for Ontario defined benefit pension plans in May 2017, related amendments to the
Ontario: Security of
Canada Pension Benefits Act (PBA) are awaiting proclamation and details of key components of the new framework have been posted for stakeholder
retirement income
comment. The 2018 Budget notes that regulations will implement the new funding regime. More information can be found here.
The regulation came into force on January 4, 2018 related to: funding policies (required by January 4, 2019); annuity purchasing policies; variable
Québec: Final funding
Canada benefits; and transfers of benefits between spouses. Please see Aon’s Information Bulletin that described the initial draft regulation (the final
regulations
regulation is relatively unchanged—with the exception of annuity purchase and marriage breakdown/seizures).
Reduced tax on Legislation in Denmark that reduces the tax rate on real estate income for non-resident pension funds based in the EU or EEA to harmonize with
EU/EEA
Danish real estate the rate for resident pension funds. This is expected to happen by July 1, 2018.
Flexible premium New legislation due to take practical effect from the start of 2019 will allow insurers some flexibility in the basis for returns of overpaid premium
Finland
returns tariff for the TyEL statutory pension.
Financing
The German Institute of Auditors (IDW) clarified in an official paper that under IFRS DC plan guarantees should be reviewed regularly. Due to the
Accounting for DC
Germany ongoing low interest environment, the risk of the guarantee applying has to be assessed each year and, if it is not unlikely that further obligations
plan guarantees
arise for the companies, those plans need to be accounted as Defined Benefit plans.
Following discussions over the last few years, the IASB issued on February 8th amendments to IAS 19. These clarify the calculation of the Profit
Amendments made to
Global & Loss expense for the pension plan for the remainder of the financial year following a plan amendment, curtailment or settlement. The effective
IAS 19
date are accounting periods starting on or after January1, 2019, early adoption is possible.
The Employees' Provident Fund Organization (EPFO) unexpectedly cut the EPF interest rate from 8.65% to 8.55%, the lowest level in several
India Changes to the EPFO
years. Besides that the EPFO is cutting the minimum investment floor for debt securities and term deposits of banks from 35% to 20%.
Contributions subsidy The Cabinet Committee on Economic Affairs has committed to extend a hiring incentive used in the textiles and garment sector to the entire
India
for new hires private sector. The government will pay the 12% employer Employee Provident Fund (EPF) contributions for new hires for their first three years.
Revised AFP annuity Financial regulator SBS has published a resolution making dynamic mortality tables obligatory in calculating annuities under the AFP private
Peru
calculation pension system from January 1, 2019.
Increased funding
South Korea Funding targets are to increase from 80% to 90% in 2019, and will increase further to 100% in 2021.
targets
Aon | Global Quarterly Insights | Q1 2018 6Key financing-related updates from the quarter - continued
Requirements
Proposals
Opportunities
Country Measures Changes
Maximum assets with New rules on pension fund management in the private pension system (BES) went into effect on January 1, 2018..Pension companies must now
Turkey
a single manager review and adjust their portfolio management arrangements in the first two months of each year to ensure sufficient spread across managers.
The statement reinforces both the actions and words of the Regulator over the past 12 months and represents a Regulator who is more likely to
United Regulator’s Annual
engage and take action to push for stronger funding plans backed up with higher contributions in the near term and long-term plans to manage
Kingdom Statement
risks. There are a number of areas where the Regulator has upped the ante suggesting that trustees and sponsors should be doing more.
The Government has published a White Paper on 'Protecting defined benefit pension schemes‘ setting out the Government's aims to increase the
United Protecting defined
Financing
protection of members' benefits. It proposes tougher, more proactive powers to allow the Regulator to intervene more effectively to prevent
Kingdom benefit schemes
employers from evading their pension obligations.
United The CMI has recently published the annual update of its mortality projections model, 'CMI_2017‘. These confirm lower national mortality
New mortality tables
Kingdom improvements, and hence lower liability values than previous versions.
United On December 22, 2017, the "Tax Cuts and Jobs Act" was signed into law. The new law provides an incentive to accelerate pension contributions
Corporate tax reform
States or other benefit costs to the 2017 tax year to maximize associated tax deductions.
Aon | Global Quarterly Insights | Q1 2018 7Key operations-related updates from the quarter
Requirements
Proposals
Opportunities
Country Measures Changes
The Minister for Revenue and Financial Services has appointed a panel to advise the government on development of Comprehensive Income
Potential longevity
Australia Products for Retirement (CIPRs). The aim is to develop risk-pooling scenarios and other strategies to help superannuation fund members reduce
risk-pooling
longevity risk.
Improving member The Australian Prudential Regulatory Authority (APRA) has launched a consultation on proposed measures to improve member outcomes
Australia
outcomes covering: annual assessment of member outcomes.
A comprehensive pension reform plan affecting all three pillars is due for appointment of a task force in April and social partner consultations in the
Comprehensive
Croatia second quarter. The plan would facilitate membership in supplemental pensions and complete compliance with a variety of EU rules, including
pension reform plan
worker mobility and money laundering.
Harmonisation of data The European Central Bank (ECB) has adopted a revision of the data reporting requirements that it released for public consultation last year. The
EU reporting statistical reporting obligation is now "streamlined" and more harmonized with the imminent EIOPA requirements Quarterly data on assets will first
requirements come due for the third quarter of 2019, with membership and liability data after the end of that year.
Operations
Enhanced regulatory The Financial Services Authority has opened a public consultation on enhancing the Island’s regulatory framework for private pensions. These
Isle of Man
framework proposals would tighten regulations, targeting gaps in risk management, scheme governance, and conflict of interest rules.
Enhanced DC A set of revisions to the law governing Defined Contribution (DC) pension schemes will come into effect as of May 1 2018. This law will require DC
Japan fiduciary plan sponsors to pay more attention to fiduciary duties, including review of competiveness of vendor services and investment products. More
responsibilities information on this can be found here.
Option to transfer Finance Law 2018 was published on December 25th indicating that premiums for individual or group retirement insurance policies may be
Morocco
between insurers transferred to other qualifying insurance companies.
The Financial Conduct Authority has published new rules and guidance for giving advice on DB transfers, including that all such advice be
United Pension transfer
provided as a personal recommendation. The FCA is also consulting on further changes to improve the quality of pension transfer advice including
Kingdom advice
a ban on fees being contingent on whether a transfer is taken.
United Harmonisation of DC
Regulations came into force on 6 April 2018 aimed at simplifying the bulk transfer of DC benefits without member consent.
Kingdom plans
Aon | Global Quarterly Insights | Q1 2018 8Key State-related updates from the quarter
Requirements
Proposals
Opportunities
Country Measures Changes
Social Security Proposals postponed due to pending election. Further dilutions are reportedly considered and analysts expect the unpopular measure to be a
Brazil
changes major election campaign issue.
Comprehensive A comprehensive pension reform plan affecting all three pillars was due for appointment of a task force in April and social partner consultations in
Croatia
pension reform plan the second quarter. To counter a dangerously low dependency ratio, it would raise the statutory retirement age from 65 to 67 by 2033.
Proposals to changes The grand coalition pact establishing a new three-party ruling coalition introduces some notable proposals to the pension legislation. Proposals
Germany
in state pension include updates to the Riester Reirement products, replacement ratio and social contributions.
The government has issued full text and a synopsis of its “Roadmap for Pensions Reform 2018-2023.” Among the highlights: automatic enrolment
Roadmap for Pension
Ireland launch in 2022: state pension more closely align benefits to the contributions paid; increases in state pension pegged to a blend of wage inflation
Reform
with the CPI to maintain it at 34-35% of average earnings; state pension age not to rise between 2028 and 2035 then linked to life expectancy.
A December 21 Employees Provident Fund (EPF) served notice that the temporary reduction of the employee EPF contribution rate would lapse
End of contribution
Malaysia from January 1, 2018. The rate has reverted from 8% to 11% for workers below age 60. A temporary 4% voluntary contribution for those aged 60
reduction
and up is once again a statutory 5.5% contribution.
State
New Extended eligibility The Foreign Affairs Minister has disclosed a Cabinet decision to relax superannuation eligibility requirements for people based in the "Realm
Zealand requirements countries"; Cook Islands, Niue, and Tokelau
Parliament's pension committee has agreed on a pension reform plan that would gradually raise the official retirement age for the state pension
Planned state pension
Sweden from 61 to 64, and increase the deferred retirement age from 67 to 69. The transition would stretch from 2018-2026. Under incentives for deferral,
reform
the actual retirement age is currently about 64.5.
Increase in The President signed a resolution on December 29 doubling the mandatory contribution to individual accumulative pension accounts (INPS) to
Uzbekistan
contributions 2%. The contribution will remain tax-exempt. The resolution went into effect on January 1, 2018.
Changes coming to A harmonization of the state pension formula for men and women under a 2014 social insurance reform went into effect on January 1, 2018. The
Vietnam
the state pension ages Deputy Prime Minister has also stated that a plan for a new "multi-tiered" social security system will be published in May 2018.
Zambia's long-gestating National Social Protection Bill has completed social partner consultation and a final draft will soon reach Parliament. A
Zambia Social Protection Bill
package of basic social protection would feature a consolidated three-pillar pension system, including a mandatory employer-sponsored schemes.
Aon | Global Quarterly Insights | Q1 2018 9 Requirements
Key areas of current focus for employers
Proposals
Opportunities
United Kingdom: Ireland: Netherlands: Switzerland:
White Paper on member protection Highlighting members’ transfer option Increased governance expectations Lump sums instead of annuities
Liability settlement & asset hedging Exploring funding alternatives Responding to insurer consolidation Pure DC (1e) for high-earners
Supporting retirement decisions Roadmap for Pension Reform Exploring use of a cross-border plan Transfer to multi-employer funds
Germany:
Potential new pure DC plans Rest of Europe:
Canada: DB de-risking and external financing State pension reform in some countries
Re-design to reflect State changes Belgium: exploring multi-employer plans
Plan harmonization and governance
Funding reform in many Provinces Poland: new mandatory plans
Accounting for DC guarantees
Settlement with insurers Spain: social security challenges & options
Turkey: continued auto-enrolment
EU/EEA:
IORP2 governance South Korea:
GDPR data protection Increased minimum DB funding
United States: Japan:
Opportunities from tax reforms Italy: New risk-sharing plan
Defined contribution optimization Early retirement options DC quality requirements
Managing & settling DB liabilities Low pension enrolment China:
Growth of supplemental plans
Mexico: Financial wellbeing where low Province benefits
Migration from DB to DC Tax benefits of commercial pension insurance
Life-cycle investment funds
Communication and financial wellbeing South-East Asia:
India: Various changes to Provident Funds
Gratuity limit enhancement
Brazil: Increased equity choice
Migration from DB to DC
Pension issues in pending national election
Australia:
Risk-pooling exploration
Settle DB risks with an insurer
Member-outcomes focus
Aon | Global Quarterly Insights | Q1 2018 10Ongoing developments: North America
Requirements
Proposals
Opportunities
Canada United States
Enhancements to Canada Pension Plan (CPP) and Quebec Pension Plan (QPP)
State
from January 2019. Latest progress in Federal Budget 2018 Information Bulletin.
Opportunities to reduce benefits to balance cost of the changes to CPP and QPP. Corporate tax changes create opportunity to review design of plans.
Design
Manitoba: Consultation on risk-sharing plans and compulsory provision. Puerto Rico: tax changes on contributions and lump sum payments.
Ontario: Harmonization of Pooled DC plans with federal law.
Québec: Proposed prevention of variation of provision by date of hire.
Increasing trend to explore settlement of pension obligations with an insurer. Increasing liability management, including settlement of obligations with an insurer.
General trend of funding regulation to reduce/remove emphasis on solvency. Corporate tax changes create opportunity to review timing of financing of DB plans.
Manitoba: Consultation on solvency funding changes. Pension mortality regulations. GRU October 2017.
Financing
Ontario: Interim Regulations towards revised funding rules. New SOA MP-2017 mortality projection scale. GRU October 2017.
Ontario: New framework for target benefit multi-employer schemes.
Ontario: Enhancement to Pension Benefits Guarantee Fund (PBGF).
Québec: Funding rules changed retrospectively from 1 Jan. 2016. GRU July 2017.
Multi-jurisdiction: Consultation on funding and winding-up. GRU August 2017.
Ontario: New Pensions Regulator and disclosable events. Strong focus on engaging employees in DC plans and broader financial wellbeing.
Operations
Québec: Various including divorce, drawdown and settlement. GRU January 2017.
P&I and Aon present Canadian Pension Risk Strategies Summit: 8 May, Toronto. Aon Compliance Calendar covers significant Compensation & Benefits dates in 2018
Knowledge
Sharing
Aon Survey: only 17% of companies have started planning for CPP/QPP changes. Annuity Settlement Market Update provides a review of 2017 and insights for 2018.
Aon Quarterly Update highlights various other regulatory changes and opportunities.
Aon thought leadership: documents are frequently added.
Aon | Global Quarterly Insights | Q1 2018 11Ongoing developments: UK & Ireland
Requirements
Proposals
Opportunities
United Kingdom Ireland
State Pension Age proposed to increase to 68 earlier from 2037. GRU August 2017. State pension to be maintained around 34-35% of average earnings.
State
State pension from 2020 to be more aligned with contributions made.
GMP Equalisation Court Case may increase accrued liabilities. GRU June 2017. Auto-enrolment to be launched from 2022.
Design
Proposals affecting DB closure and same-sex spouse’s benefits. GRU June 2017.
Low yields environment stimulated risk settlement & hedging strategies. Strong funding requirements driving parental guarantees or cross-border plans.
Debate evolving over alternative ways of valuing pension scheme funding liabilities. Proposals affecting timing of valuations, and recovery plans. GRU June 2017.
Financing
Regulator’s annual funding statement expects more of sponsors and trustees.
Latest national mortality tables show slowing of longevity improvements.
White Paper published aimed at enhancing protection for members’ pensions.
Increasing interest in tools to support members’ decision-making at retirement. Increasing interest in exercises to inform members’ of their option to transfer.
Uncertainty for cross-border pensions and insurance contracts due to Brexit. More coherent and transparent environment planned for governance.
Additional expectations of advisers in relation to pension transfers.
Operations
Consultation on the banning of contingent fees in relation to pension transfer advice.
Rules enabling DC fund transfer without member consent to aid plan harmonisation.
Regulator’s 21st Century Trusteeship requirements. See October 2017.
Highlight guarantees to members requesting access or transfer. GRU August 2017.
Isle of Man regulatory framework proposed to be enhanced.
Pension fund cyber breakfast seminar: May 8, London.
Reducing risk at the right price: May 15, London; June 6, Birmingham.
Knowledge Sharing
Investment Breakfast Series, London: May 22; June 14; Sept 11, Oct 10, Nov 6.
Gearing up for Change Investment Conference: London, June 12.
Better DC Decisions Workshop: London, July 9.
UK retirement conferences and seminars are added frequently.
Risk Settlement Annual Review: a look at 2017 market activity and survey findings.
2018 Fiduciary Survey: our UK Fiduciary Survey is now open.
Aon Insight zone is frequently updated with new insightful reading materials.
Aon | Global Quarterly Insights | Q1 2018 12Ongoing developments: Continental Europe
Requirements
Proposals
Opportunities
Central & Eastern Europe Continental Western Europe
Croatia: Increase in statutory retirement age to 67 from 2033. Germany: Aim to provide 48% of average wage by 2025.
Latvia: Solidarity Tax should be changed by January 2019. GRU November 2017. Italy: state retirement age increase to 67 from 2019. GRU December 2017.
State
Poland: Removing cap on contributions January 2019. GRU December 2017. Spain: Reduced state replacement ratios due to public system deficit.
Romania: Changes to the Social contribution structure. GRU November 2017. Sweden: Increase in state pension age to 64, or 69 if deferred.
Ukraine: Wide-ranging changes to State pensions. GRU September 2017.
Armenia: Second-pillar pension compulsory from July 2018. GRU December 2017. France: New pension vehicle available from 2019. GRU April 2017.
Germany: Some industries now exploring Pure DC plans. GRU June 2017.
Czech Republic: Account-based second-pillar plans from 2020.
Estonia: Annuities with investment risk introduced in January 2018. GRU July 2017. Italy: Three types of recent early retirement options. GRU December 2017.
Design
Luxembourg: Awaiting details of potential second-pillar reforms.
Georgia: Proposals for mandatory retirement saving plan. GRU November 2017.
Netherlands: Awaiting progress on Government ambitions for changes by 2020.
Poland: New mandatory employer-sponsored (PPK) plan from 2019.
Spain: Cash-out option for employees with 10 years’ service.
Turkey: Next auto-enrollment 1 July 2018 where 10-49 people. GRU January 2017.
Switzerland: Pure DC (1e) plans for higher-earners. GRU September 2017.
Turkey: New limit on assets with a single investment manager. EU/EEA: Employers in various countries exploring cross-border plans.
Financing
Latvia: Further reductions to administrative commission fees from January 2019. EU/EEA (Denmark): Reduction in tax on Danish real-estate investment.
Finland: New flexibility in return of overpaid pension premiums.
Germany: DC plans with guarantees confirmed as DB for accounting.
Croatia: Adjustments for compliance with EU requirements. Belgium: Guidelines for DC plan investment disclosures. GRU November 2017.
Operations
European Union: IORP2 Directive regarding risk management, governance and communications. See GRU January 2017.
European Union: Implement tighter requirements expected from 25 May 2018 under General Data Protection Regulations (GDPR). Updated information available.
European Union: Awaiting details of plans to introduce a Pan-European Personal Pension (PEPP).
Aon | Global Quarterly Insights | Q1 2018 13Ongoing developments: Asia Pacific
Requirements
Proposals
Opportunities
South East Asia & Pacific Rest of Asia
Thailand: Mandatory Provident Fund now in place. See GRU June 2017. India: Proposed salary ceiling increase for mandatory provident fund. GRU Jan 2018
Malaysia: End of reduced Employee Provident Fund contributions. GRU Jan 2018. India: Government to pay the 12% employer EPF contribution for new hires.
State
New Zealand: Eligibility simplified for residents of “Realm” countries. Uzbekistan: Mandatory contributions up to 2% from January 2018. GRU Jan 2018.
Vietnam: Equalised state pension implemented.
Vietnam: Multi-tiered social security proposals expected in May.
Hong Kong: Plans to increase contribution thresholds in MPF. GRU January 2018. Bangladesh: Universal pension scheme including retirement lump sum.
Hong Kong: Public annuity scheme expected in mid-2018. GRU May 2017. China: New maximum contributions and vesting periods.
Macau: Voluntary Central Provident Fund now in place. GRU June 2017. India: Maximum tax-free gratuity payment doubled.
India: Incentives to join National Pension Scheme (NPS). GRU November 2017.
Design
India: Maximum age of joining NPS increased to 65. GRU November 2017.
India: Proposed increase in equity holdings for active NPS investors.
India: Early retirement eligibility broadened from Provident Fund.
Japan: Risk sharing pension plans as an option to DB or DC.
Pakistan: New option to transfer benefits on death before retirement. GRU Jan 2018
Australia: Government exploration of longevity risk-pooling options. Japan: Consider closing EPFs due to 2019 funding requirements. GRU Feb 2018.
Operations Financing
Singapore: Transfer flexibility from Central Provident Fund. GRU November 2017. South Korea: Funding targets from 80% to 90% in 2019, and to 100% in 2021.
Australia: Awaiting final proposals aimed at improving member outcomes. India: Monthly ranking of EPFO performance. GRU November 2017.
Hong Kong: New disclosure obligations for ORSs subject to CRS. Japan: New law from May 2018 to promote the quality of DC plans.
Aon | Global Quarterly Insights | Q1 2018 14Ongoing developments: Middle East, Africa & Latin America
Requirements
Proposals
Opportunities
Middle East & Africa Latin America
Brazil: Proposed changes postponed due to pending election.
State
Nigeria: Proposals to increase retirement lump-sums. GRU September 2017. Migration from DB to DC continues in Mexico and Brazil.
Design
Many countries may be affected by Inter-American ruling on marriage equality.
Brazil: Plan re-design to reflect recent changes to social security provisions.
Chile: Proposed private pension reforms, including employer contributions.
Namibia: Foreign investment cap introduced. GRU October 2017. Brazil: Increasing interest and opportunity to settle DB liabilities with an insurer.
Financing
Mexico: Increased interest in life-cycle investment funds.
Peru: Dynamic mortality tables now required for annuity calculation from AFP.
Morocco: Now able to transfer funds to another qualified insurer. GRU Jan 2018. Mexico: Increased focus on employee communication and financial wellbeing.
Operations
Zambia: Social protection bill proposes three-pillar pension system. GRU Feb 2018.
Zimbabwe: Draft regulations on governance for pension trustees. GRU August 2017
Aon | Global Quarterly Insights | Q1 2018 15Aon Global Retirement Update
Appendix
Further details on the main developments
affecting sponsors of retirement plans
January to March 2018
If you have questions please contact your Aon consultant or email global.retirement.mailbox@aon.com
Please also use this mailbox to let us know how we could improve the ways in which we update you on new retirement topics of importance to you.
Prepared by Aon
Consulting | Retirement and InvestmentMore information on changes during the quarter Requirements
Multi-country applicability
Proposals
Opportunities
Design
The Inter-American Court of Human Rights (IACHR) has ruled in favor of marriage equality in a case brought by the Costa Rican
government. The President of Costa Rica has already committed to complying with the judgment. This could have much more
Americas: Ruling on than a ripple effect in South and Central America as 19 other nations have agreed to abide by IACHR decisions. Those that do
marriage equality not already fully recognize marriage equality include Barbados, Bolivia, Chile, the Dominican Republic, Ecuador, El Salvador,
Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, and Suriname.
For more information, or support, please contact Patricia Barra.
Financing
A package of legislation produced by the Danish Ministry of Taxation includes a provision that would harmonize the tax rate on
real estate income for resident pension funds and non-resident pension funds based in the EU or EEA. The latter now pay 22%
EU/EEA: Updated on real estate income and capital gains on a realization basis. From July 1, 2018, they are expected to qualify for the Danish
legislation on taxation of pension fund rate of 15.3% on real estate income with capital gains and losses determined on a market-to-market basis. They
Danish real estate income could elect by August 1, 2019 to extend the new regime retroactively to 2013. This present an opportunity for pension funds to
for EU/EEA pension funds rethink their financing strategy and adjust it accordingly based on the new legislation.
For more information, or support, please contact Heidi Stovring.
Following discussions over the last few years, the IASB issued on February 8th amendments to IAS 19. These clarify the
calculation of the Profit & Loss expense for the pension plan for the remainder of the financial year following a plan amendment,
curtailment or settlement. They do not change the calculation of the impact of the special event itself.
For the majority of companies, the amendments will not result in any changes to reported results. Where results will change,
relative to current practice, is when there is a special event during a year such as a benefit change, scheme closure or a buy-
Global: Amendments out. Broadly, the changes require a reporting entity to update the P&L for the remainder of the year following the special event to
made to IAS 19 reflect fully market conditions at the date of the special event. To date, the P&L for the remainder of the year was based on a
combination of start year market conditions and conditions at the date of the special event.
The changes are applied prospectively, coming into force for special events occurring during accounting periods beginning on or
after 1 January 2019, although earlier application is permitted.
For more information, or support, please contact Kirsten Miller.
Aon | Global Quarterly Insights | Q1 2018 17More information on changes during the quarter Requirements
Multi-country applicability
Proposals
Opportunities
Operations
The European Central Bank (ECB) has adopted a revision of the data reporting requirements that it released for public
consultation last year. The statistical reporting obligation is now "streamlined" and more harmonized with the imminent EIOPA
EU: Harmonisation of (European Insurance and Occupational Pensions Authority) reporting requirements. The quarterly data on assets will first come
data reporting due for the third quarter of 2019 while the annual figures on members and liabilities will reflect 2019. The requirement is binding
requirements only for pension funds in the euro area member states, but the EIOPA rules are expected to apply to all EU members.
For more information, or support, please contact Marc Salameh.
Aon | Global Quarterly Insights | Q1 2018 18More information on changes during the quarter Requirements
Canada
Proposals
Opportunities
Design
On January 10, 2018, the Ministry of Finance announced a consultation on a review of The Pension Benefits Act (PBA). The
consultation is in response to the recommendations released by The Pension Commission of Manitoba (as part of its required
five-year review of the PBA).
The consultation is focused on the following issues:
New plan designs (target benefit pension plans and shared risk pension plans).
Solvency deficiency funding rules.
− Option 1—Eliminate solvency funding and enhance going concern funding.
− Option 2—Introduce solvency reserve accounts.
− Option 3—Eliminate solvency funding.
Manitoba consulting on − Option 4—Maintain the current solvency funding rules.
risk-sharing plans Locking-in provisions and access to locked-in pension funds.
Compulsory pension plan membership.
Division of pensions on relationship breakdown.
Clarification/legislative gaps.
Sources:
Province to Consult with Manitobans on The Pension Benefits Act Review
Consultation Paper – The Pension Benefits Act Review
Recommendations for Reforms to The Pension Benefits Act
For more information, or support, please contact Julianne Ralph.
Financing
Manitoba consulting on See above under Design.
new solvency funding
approach
Aon | Global Quarterly Insights | Q1 2018 19More information on changes during the quarter Requirements
Canada
Proposals
Opportunities
Design
The Quebec government is concerned about disparity in treatment clauses based on date of hire for pension and group insurance
Québec considering plans, and it is considering prohibiting such clauses.
preventing variation in
Please see the Aon paper available here for more details.
provision by date of hire
For more information, or support, please contact Julianne Ralph.
Financing
On December 20, 2017, a Regulation to amend the Regulation respecting supplemental pension plans was published in the
Gazette officielle du Québec.
The regulation provides for various measures related to:
Funding policies (required by January 4, 2019).
Annuity purchasing policies.
Variable benefits.
Québec confirmation of Transfers of benefits between spouses.
new funding regulations The regulation came into force on January 4, 2018.
Please see Aon’s previous Information Bulletin that described the initial draft of the regulation (the final regulation is relatively
unchanged—with the exception of provisions related to the content of the annuity purchase policy and details related to marriage
breakdown/seizures).
Source: Regulation to amend the Regulation respecting supplemental pension plans
For more information, or support, please contact Julianne Ralph.
Following the announcement of a new funding framework for Ontario defined benefit pension plans in May 2017, related
amendments to the Pension Benefits Act (PBA) are awaiting proclamation and details of key components of the new framework
Ontario 2018 Budget have been posted for stakeholder comment. The 2018 Ontario Budget (Budget) was tabled on March 28, 2018. The next Ontario
proposals election is in June, which means that items proposed in this Budget are likely contingent upon the current government
maintaining power.
For more information, or support, please contact Julianne Ralph.
Aon | Global Quarterly Insights | Q1 2018 20More information on changes during the quarter Requirements
United States
Proposals
Opportunities
Design
Act No. 106/2017 has brought changes to the tax treatment of Puerto Rico qualified retirement plans:
The contribution limit recently introduced for defined contribution plans under Act No. 9 is rescinded. The cap is once again the
Puerto Rico: Changes to lesser of the maximum under U.S. Code Section 415(c) (US $55,000 in 2018) and 100% of one's annual salary.
taxation of contributions Any lump-sum distributions made after December 31, 2017 will be classified as ordinary income rather than long-term capital
and lump sum payments gains, but the 20% tax rate will still apply when participants meet certain withholding and deposit obligations.
The coverage testing for dual-qualified (Puerto Rico/U.S.) plans will be streamlined from 2017.
For more information, or support, please contact Eva Gonzalez.
Financing
On December 22, 2017, the "Tax Cuts and Jobs Act" was signed into law. The Act makes sweeping changes to corporate and
personal income tax laws, generally effective starting with the 2018 tax law. Notable corporate tax provisions include a decrease
in the headline income tax rate from 35% to 21% and the elimination or limitation of various deductions.
Opportunities arising Many U.S. companies will see lower marginal tax rates starting in 2018, though companies will need to perform additional
from changes to analysis to determine the precise impact on their own marginal tax rate.
corporate taxation
For benefit plan sponsors expecting a decrease in marginal tax rates, the new law provides an incentive to accelerate pension
contributions or other benefit costs to the 2017 tax year to maximize associated tax deductions.”
For more information, or support, please contact Matthew Bond.
Aon | Global Quarterly Insights | Q1 2018 21More information on changes during the quarter Requirements
United Kingdom
Proposals
Opportunities
Financing
The statement is aimed at schemes with valuation dates in the year from 22 September 2017, but relevant to all schemes, and
reinforces the actions and words of the Regulator over the past 12 months about engaging and taking action. Pro-active
casework is up by 90% and investigations are underway where powers may be used to impose contributions or take other action.
The Regulator has upped the ante suggesting that trustees and sponsors should be doing more in relation to:
Integrated Risk Management – trustees and sponsors should document long-term plans to deal with downside scenarios
such as a sudden downturn in employer strength, and plans to put the scheme on a solid footing should the opportunity arise.
Annual Regulator’s Equal treatment of pension schemes with shareholders – trustees are encouraged to perform analysis of the relative
Statement on scheme amounts of dividends and deficit contributions to secure a fair deal for the pension scheme.
funding Scheme maturity – all schemes should understand the risks to funding and investment from increasing scheme maturity.
Transfer activity continues to be high should be monitored.
The statement gives examples of the key risks for trustees to manage and actions to take, including:
Manage covenant deterioration risk, by stronger technical provisions or a shorter recovery plan when the employer is strong.
Weaker sponsors with limited affordability should prioritise scheme liabilities over shareholder returns.
For weak sponsors with stressed schemes, trustees should seek and evidence best possible funding outcome for members.
For more information, or support, please contact Jillian Pegrum.
The Government has published a White Paper on 'Protecting defined benefit pension schemes‘ setting out the Government's
approach for the future of the DB system, and supporting the Pensions Regulator's aim to be 'clearer, quicker and tougher'.
The Government aims to maintain confidence in DB pensions by increasing the protection of benefits. It proposes tougher, more
proactive powers for the Regulator to intervene to prevent employers from evading pension obligations, including:
Protecting defined More powers to punish employers who put their schemes at risk;
pension schemes Increased powers to gather information;
Potential for strengthened funding standards through a revised and 'enforceable' Code of Practice; and
A requirement for DB trustee chairs to produce a chair's statement.
The Government will also consult on a framework for consolidation in the DB sector.
For more information, or support, please contact Jillian Pegrum.
Aon | Global Quarterly Insights | Q1 2018 22More information on changes during the quarter Requirements
United Kingdom
Proposals
Opportunities
Financing
The CMI has recently published the annual update of its mortality projections model, 'CMI_2017‘, reflecting an additional year of
national mortality data. 2017 continued the recent trend of low national mortality improvements, and it is no surprise that
Updated mortality tables CMI_2017 typically produces lower life expectancies, and hence lower liability values than previous versions.
For more information, or support, please contact Jillian Pegrum.
Operations
The Financial Conduct Authority has published new rules and guidance for giving advice on transferring safeguarded (eg DB)
benefits. The changes include new requirements for all pension transfer advice to be provided as a personal recommendation,
'appropriate pension transfer analysis' of the individual's options to be undertaken, and a prescribed transfer value comparator.
Pension transfer advice The FCA has retained its stance that advisers should start from the assumption that a transfer will be unsuitable. The FCA is also
consulting on further changes to improve the quality of pension transfer advice, and is seeking views on whether it should
introduce a ban on contingent charging (where a fee for advice is only paid when a transfer goes ahead).
For more information, or support, please contact Jillian Pegrum.
Regulations come into force on 6 April 2018 which aim to simplify the bulk transfer of DC benefits without member consent by:
Removing the requirement for actuarial certification and for there to be an underlying relationship between the schemes;
Introducing a statutory requirement for trustees to consult with an appropriate adviser (who is independent from the receiving
DC fund transfer without scheme), unless the transfer is to an authorised master trust, or the sponsoring employers are connected;
member consent Retaining the charge cap (of 0.75% pa) in the receiving scheme where this applied in the transferring scheme.
The DWP is intending to work with the Pensions Regulator to produce high level guidance for trustees by the end of April 2018.
For more information, or support, please contact Jillian Pegrum.
The Financial Services Authority has opened a public consultation on Discussion Paper DP18-02/T15 Proposals to enhance the
Island’s regulatory framework for private pensions and their providers. To complement the retirement savings incentives
Isle of Man: New proposed for the Pension Freedom Scheme, this set of proposals would tighten regulations for the sector, providing enhanced
regulatory framework consumer protection while targeting gaps in risk management, scheme governance, and conflict of interest rules. Feedback is
proposed welcome through April 27, 2018.
For more information, or support, please contact Jillian Pegrum.
Aon | Global Quarterly Insights | Q1 2018 23More information on changes during the quarter Requirements
Ireland
Proposals
Opportunities
Design
Roadmap for Pension See below under State.
Reform
State
The government has issued full text and a synopsis of its “Roadmap for Pensions Reform 2018-2023.” Among the highlights:
The automatic enrolment retirement savings scheme will launch in 2022. Employee savings will be complemented by employer
and state contributions.
A Total Contribution Approach (TCA) for the state pension, due in 2020, would more closely align benefits to the contributions
paid. Forty years of contributions would earn a full state pension and people who take breaks in employment for "caring duties"
could be credited for up to 20 years of contributions. There will be a public consultation in the second quarter of 2018.
Roadmap for Pension Future increases in the state pension contributory payment will be pegged to a blend of wage inflation with the CPI to maintain it
Reform at 34-35% of average earnings.
The state pension age, which is scheduled to reach 68 in 2028, will see no further rises until 2035 and will then be linked to
increases in life expectancy.
Governance and regulation of private pensions will improve to develop a "more coherent and transparent environment" for the
sector. Legislation transposing the EU IORP II Directive 2016/2341 should arrive in the third quarter of 2018.
For more information, or support, please contact Shane Horgan.
Aon | Global Quarterly Insights | Q1 2018 24More information on changes during the quarter Requirements
Central & Eastern Europe
Proposals
Opportunities
Design
A tripartite council of government officials and social partners recently convened to discuss the Prime Minister's pension reform
Czech Republic: agenda. He plans to launch an individual account second-pillar pension scheme in 2020. There would also be measures to
Proposed account-based encourage employer provision of third-pillar supplemental pensions. The Cabinet has already approved a measure that would
second-pillar scheme make it easier to channel funds from privatization accounts into first-pillar benefit increases.
For more information, or support, please contact Jiri Louthan.
On February 15th the Ministry of Finance announced project of the final legislation on Employee Capital Plans (PPK). Please find
below the most important details:
• Co-financed by the state with 250 PLN welcome fee and 240 PLN a year state subsidy.
• The expected contribution structure will look as follows.
− The employer's basic contribution will be 1.5% of the remuneration eligible for Social Security Taxation (Only if the
employee decides to only join a PPK), and this can be increased with an additional contribution of 2.5%.
− The employee’s basic employee contribution will be 2.0% of the remuneration eligible for Social Security Taxation , and this
can be increased with an additional contribution of 2.0%.
• Employer’s contributions are tax deductible.
• There will be an automatic enrollment into the PPK for people aged between 19 and 55. Enrollment over 55 years is voluntary.
• The cost limit for financial institutions operating a PPK is 0.6%. This 0.6% is split into a maximum cost limit of 0.5% and
Poland: Proposal to form additional 0.1% based on fund performance.
Employee Capital Plans • PPK’s will be available to all employees for whom pension contributions are paid to the Social Insurance Institution (ZUS).
(PPK) This means that the PPK will eventually be taken up by companies employing at least one person for whom a ZUS
contribution is paid (unless the employer has already established a PPE within his company, paying a contribution of minimum
3.5%).
• The accumulated funds can be used to pay your own share when buying your first home. After a grace period not longer than
5 years, this share has to be paid back to the PPK within 10 years without any interest.
• In case of a sever, long-term illness of the employee, spouse or child, 25% of your saved funds can be paid out immediately
• The assets accumulated in the PPK may be inherited if the participant dies
The auto enrollment is expected to start per 1 January 2019 for companies employing over 250 people.
It is expected that the formation of the PPK will start soon. The consultation period has ended, and the final legislation is expected
soon. As such, it is prudent that as an employer you start to think about the formation of an PPK.
For more information, or support, please contact Remigiusz Kostka.
Aon | Global Quarterly Insights | Q1 2018 25More information on changes during the quarter Requirements
Central & Eastern Europe
Proposals
Opportunities
Financing
New rules on pension fund management in the private pension system (BES) went into effect on January 1, 2018. An asset
manager may oversee no more than 40% of a pension company's portfolio and there had previously been no cap so what had
Turkey: New asset often been the role of a single asset manager now requires at least three. Pension companies must now review and adjust their
manager limits under BES portfolio management arrangements in the first two months of each year.
For more information, or support, please contact Neslihan Ayanoglu.
Operations
A comprehensive pension reform plan affecting all three pillars is due for appointment of a task force in April and social partner
consultations in the second quarter. The plan would facilitate membership in supplemental pensions and complete compliance
with a variety of EU rules.
Croatia: Operational
adjustments to ensure Besides that, the Ministry of Labour has delivered a bill to Parliament that would amend the Law on Voluntary Pension Funds and
compliance with EU law the Law on Pension Insurance Companies to bring them into compliance with EU rules on worker mobility by removing
discrepancies in the access and preservation of supplementary pension rights for mobile workers. It would also incorporate
recommendations from the Council of Europe money laundering regulator MONEYVAL by establishing a mechanism to check on
criminal backgrounds for key pension fund managers. A consultation was recently concluded on a draft of this bill.
For more information, please contact Bart Steegs.
State
A comprehensive pension reform plan affecting all three pillars is due for appointment of a task force in April and social partner
Croatia: Proposals on consultations in the second quarter. The Labour Ministry has already modeled the possible impact of various reform scenarios.
pension reforms and To counter a dangerously low dependency ratio, it would raise the statutory retirement age from 65 to 67 by 2033.
pension laws
For more information, please contact Bart Steegs.
Aon | Global Quarterly Insights | Q1 2018 26You can also read
