The economic fall-out from the pandemic is a global concern. As we headed into the first quarter of 2021, several countries enacted changes to support economic stability. Changes include, Canada introduced conditional deferrals, Singapore offered government-match for provident fund contributions, and Italy implemented contribution exemptions. This article will examine these ground-breaking economic measures.
Canada: Ontario offers conditional deferral of defined benefit employer contributions
In September 2020, Ontario’s government enacted amends Ontario Regulation 909 under the Pension Benefits Act. According to the amendment, employers in Ontario will be allowed to defer their defined benefit (DB) pension contributions due from October 1st, 2020 to March 31st, 2021, to be made up with interest from April 2021 to March 2022. Several restrictions and conditions are applicable to the employers who opt for conditional deferral.
Canada: Quebec Introduces New Occupational Pension Plan
In December 2020, the Quebec government passed a law to introduce a new occupational pension plan, the Target Benefit Pension Plan (TBPP), which combines features from the defined contribution and defined benefit schemes. TBPP will be fully funded by employee and employee contributions and will not provide guaranteed benefits. Quebec’s government is expected to release additional regulatory guidance on the TBPP by the end of 2023.
Mexico Implements Changes to Pension System
Mexico’s government implemented a number of changes to the AFORE (Administradoras de Fondos para el Retiro) pension system effective January 1st, 2021. Key changes include increase of guaranteed minimum pension from MXN 3,289 to an average of MXN 4,345 per month. Minimum required weeks of contributions for old-age pension is reduced from 1,250 weeks (24 years) to 750 weeks (14.4 years). From 2022, the eligibility requirement will increase by 25 weeks per year until reaching 1,000 weeks (19.2 years) in 2031. Employer contributions for the old-age pension will gradually increase from 6.5% to 15% from January 2023 to 2030. Reforms also cap the administrative fees for pension funds and adjustments to government contributions for employees earning minimum wage.
EMEA (Europe, the Middle East, and Africa)
France Adds 2.6% Tax for Healthcare Contributions
In an attempt to bridge a large budget deficit gap, the French government has added a tax of 2.6% on employer healthcare contributions of 2020. An additional tax of 1.3% will be levied for 2021 contributions. France’s social security has seen a deficit of around EUR 50 billion over the past three years. Individuals not seeking elective health services due to COVID-19 pandemic restrictions have also impacted the budget.
Germany Introduces Insolvency Protection for Pension Funds
Germany has introduced a new law for pension insurance funds (“Pensionskasse”) that will protect the employee’s pension benefits against insolvency of the employer. This law only applies to regulated pension funds (such as company pensions) and funds that are not subject to the statutory security fund.
Italy Announces Social Security Contribution Exemptions
As a measure to support economic stability hampered by the COVID-19 pandemic, the Italian government rolled out several changes to social security contributions. Employers will be able to receive total exemption from social security contributions (excludes contributions to National Insurance for Labor Accidents (INAIL) for hiring female employees). The employer contribution exemption has a maximum limit of EUR 6,000 per year for 18 months and applies to female new hires unemployed for at least 24 months (6 months for some cities). Additional social security contribution reduction will be applied to companies located in Sardegna, Calabria, Basilicata, Puglia, Abruzzo, Sicilia, Campania, and Molise.
As per the update, employers are allowed to pay 30% of social security contributions until 31 December 2025, 20% for the years 2026 and 2027, and 10% for the years 2028 and 2029. This reduction of contributions, which will be in effect until 2029, applies to new hires under age 55. Newly-hired employees under 35 will also receive 100% social security exemptions, up to maximum EUR 6,000 per year (excludes contributions to INAIL). This exemption will be applied for a three-year period to new hires with permanent/open-ended employment contracts. All the social security changes came into effect on January 1st, 2021.
Netherlands Introduces Changes to Commuter and Office Allowances
With many employees working from home due to COVID-19 pandemic, the government of the Netherlands put a hold on the commuter allowance mandate. Employees will receive fixed net travel allowances until April 1st, 2021, after that the program will be cancelled. Reimbursements will be tax-free, and the government will announce further details in March. Employers are offering office tools and allowances for employees working from home. These tools will be tax-free if used 90% for company purposes; otherwise they will be taxed as a benefit in kind.
Norway DC Pension Plan Reforms
Starting January 1st, 2021, three key changes to Norway’s Defined Contribution (DC) occupational plans took effect. First, the vesting period of 12 months for employer contributions has been eliminated. This change will allow employees to retain employer contributions regardless of their work tenure with the employer. For DC pension accounts, employees will now be able to choose their pension provider, which previously was chosen by employers. Additionally for DC pension accounts, multiple accounts of an employee will be automatically consolidated into a single account. These changes are part of an effort to reduce administrative costs and improve efficiency of managing employees’ accumulated pension funds.
Switzerland Revises Second Pillar Pension
The Swiss government has revised second pillar pension to allow individuals aged 58 or older who have been terminated, to continue benefits through their employer-sponsored occupational pension schemes until they reach the normal retirement age specified by the plan. To stay on the pension plan, individuals are required to pay both employer and employee contributions and must continue death and invalidity insurance coverage. This change took effect on January 1st, 2021.
Switzerland Implements Paternity Leave
Paid paternity leave of 10 days is now granted to fathers in Switzerland. As of January 1st, 2021, will be equal to 80% of the employee’s average salary (capped at CHF 2,744) prior to the baby’s birth. Paternity leave must be used within six months after the baby’s birth. Previously, there was no statutory requirement for paternity leave.
Belgium Suspends “Cash for Car” System
The “Cash for Car System,” a mobility allowance put forth by Belgium in 2018, was cancelled on December 31st, 2020. Under this system, employees could exchange company cars for remuneration. The program, which was intended to reduce the number of cars on the road, was suspended due to various taxation issues and no guarantee of fewer cars in use.
Hong Kong Increases Maternity Leave
The Hong Kong government passed a bill to extend statutory maternity leave to 14 weeks from the previous 10 weeks. Maternity pay will remain the same for additional four weeks, calculated at four-fifths of the employee’s daily average pay during the previous 12-month period, capped at HKD 80,000. The definition of miscarriage for maternity leave has been changed from 28 weeks to the event happening at or after 24 weeks of pregnancy. Additionally, fathers can take paternity leave within 14 weeks after childbirth, a change from the previous 10 weeks. These changes went into effect on December 11th, 2020.
Japan Announces Amendments to National Pension Law
The government in Japan has announced several amendments to the National Pension Law that was set up in 2020. For defined benefit (DB) plans, there is an increase to the annuity commencement age to 70 years, and assets from terminated DB plans can be moved and accessed through iDeCo (individual DC plan) from May 2022. For defined contribution (DC) plans, the annuity commencement age has been extended to 75 years from April 2022. The age has been increased to 70 years (from 65 years) for Corporate DC plans and to 65 years (from 60 years) for iDeCo. Additionally for DC plans, iDeCo Plus will be extended to employers with less than 300 employees (up from 100 employees), and conditions for non-Japanese nationals will allow for cash-out options upon leaving the country from May 2022.
Singapore Implements Government Match for Provident Fund Contributions
The Singapore government rolled out the Matched Retirement Savings Scheme for Central Provident Fund (CPF) in January. From 2021 to 2025, the government will provide a dollar-for-dollar match of up to SGD 600 per year in catch-up contributions for qualifying CPF members. To be eligible for this program, individuals must have a retirement account balance of less than the basic retirement sum (currently SGD 93,000), meet certain asset limits, and be in the 55 to 70 age group.
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