International Benefits Update – Q2 2019

Europe is predominantly featured in Woodruff Sawyer's 2nd Quarter International Benefits Update, with many changes to mandatory leave entitlements and pension programs.

Also included are:

  • Summaries of Australia's private health care plan changes
  • Canada's reformations to its labor code and social pension program
  • Hong Kong's introduction of tax-deductible voluntary MPF contributions

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Private Health Insurance Reforms

The Australian government passed a law in late 2018 to simplify private health insurance coverage and make it more affordable.

Taking effect on April 1, 2019, and with changes continuing through April 1, 2020, a new system will be set up to categorize hospital products into four tiers: Gold, Silver, Bronze, and Basic.

New policies will be classified according to the level of cover they provide, covering up to 38 categories of treatment.

Other changes coming into effect under the new reform include:

  • Accommodation benefits for rural Australians
  • No cover for naturopathy
  • Discounts for young people
  • Reduced premiums by taking a higher excess

The existing policies will stay in the old format until April 2020; thereafter, everyone will need to have a policy in the new system.


Social Pension Expansion

On January 1, 2019, Canada enhanced the Canada Pension Plan (CPP). This change, phased out over seven years, will increase the benefits for four sections of CPP: survivor's pension, disability pension, retirement pension, and post-retirement benefits.

In total, the replacement ratio for monthly old-age pension benefits will increase to around one-third of the employee's average monthly career earnings, up from one-quarter of earnings previously. Eligibility for CPP benefits will remain the same.

The increase in contributions will be phased in two steps.

Step 1.2019 to 2023: On earnings between $3,500 and the original earnings limit, the contribution rate for employees will increase from 4.95% to 5.95%.

Step 2. 2024 to 2025: A second earnings ceiling, separate from the first earnings ceiling, will be introduced. With this, employees will be able to contribute more to the CPP.

After completion of the phase-in, employees will contribute 11.9% of earnings up to the first earnings ceiling and 8% on the second earnings ceiling.

This change does not affect Quebec.

Labor Code Changes

A series of changes have been made to Canada's Labor Code. On March 17, 2019, the new Employment Insurance (EI) Parental Sharing Benefit went into effect.

For the parents who opt the new EI benefit, the total aggregate parental leave period will be increased by five weeks (or eight if the employee takes the extended parental leave).

Other key changes to be implemented starting September 1, 2019, include:

  • Amendments to rest periods and work breaks, vacation and holiday pay
  • Revisions to the current notice period for termination of employment
  • Changes to leave of absences for court or jury-duty leave, bereavement leave, family violence leave, and personal leave

The six months of service requirement will no longer be needed for leaves related to critical illness, disappearance or death of a child, or maternity and paternity leaves.

A Pay Equity Act will be introduced for federally regulated employers with more than 10 employees; the implementation date of this change has yet to be determined.

Once rolled out, employers will be required to establish and enact a pay equity plan within three years.


Leave Expansion

Luxembourg (holidays and sick leave): Beginning in 2019, Luxembourg's residents will get an additional paid public holiday on May 9 to celebrate Europe Day.

For employees, this addition raises the holiday allowance to 26 days of paid annual leave, up from 25 days previously.

As for sick leave, effective January 1, 2019, the short-term disability payment period has been increased from 52 weeks to 78 weeks, and the reference period used to calculate the disability payment has increased from 12 to 18 months.

Employers must continue to pay employees' full salary (80% of which is reimbursed by mandatory insurance) until the end of the month with the 77th day of absence due to disability.  

Netherlands (parental leave): Effective January 1, 2019, paid paternity/partner leave will increase from two days to five days. Adoption leave has been extended from four to six weeks.

Italy (sick leave): Effective January 1, 2019, paid parental leave has expanded from four days to five days.

Czech Republic (sick leave): The government has made an amendment to the Labor Code that eliminates the initial three-day waiting period for paid sick leave. Effective July 1, 2019, employers will be required to provide paid leave from the first day of absence due to sickness, rather than day four.


Supplemental Pension Program Merger

On January 1, 2019, the General Association of Retirement Institutions for Executives (AGIRC) and Association of Supplemental Pension Plans for Employees (ARRCO) merged to form a single program called AGIRC-ARRCO.

Under the unified program, new deferred retirement incentives were rolled out and changes were implemented for base and special contributions, program administration, and pension point values. Contribution rate changes include one set of rates and two salary bands to calculate contributions, previously separate rates, and six salary bands.

The new Contribution d'Équilibre Général (CEG) replaces several special contributions. Before the merger, ARRCO covered all private-sector employees (96% of all French workers) and AGIRC covered only executives or managers.

The AGIRC-ARRCO program is an attempt to streamline France's nationalized supplemental pensions.


Statutory Pension Reform and Reduced Social Contributions

On January 1, 2019, Germany implemented statutory pension reform with the intention of improving benefit adequacy and protecting vulnerable populations from poverty. The reforms are estimated to cost a total of USD $36.64 billion through 2025.

Key changes that came into effect include new minimum and maximum contribution rates for employees and employers. Current contribution is 18.6%, divided equally between employers and employees, and will stabilize at 20% of gross income by 2025. There will also be an increase in pension credits for families with children born before 1992.

The benefit formula for disability pension benefits will be adjusted to increase the credits for the time an individual had worked and paid contributions prior to their disability. Additionally, the target replacement rate for old-age pensions will be adjusted to 48% of average wages through 2015.

Effective July 1, 2019, social contributions for lower paid workers (monthly contributions between EUR 350 to EUR 1,000) will be reduced.

Hong Kong

MPF Voluntary Contribution Tax Deduction

Starting April 1, 2019, a new law allows employees to make tax-deductible voluntary contributions (TVCs) to the Mandatory Provident Fund (MPF) of up to HKD 60,000. To get the deductions for the voluntary contributions, employees will be required to set up a new MPF sub-account. This legislation is an attempt to promote retirement savings.

United Kingdom

Mandatory Supplemental Pension Changes

Statutory minimum employer and employee contributions to mandatory supplemental pension plans in the United Kingdom increased on April 6, 2019.

As of October 2012, employers have to automatically enroll employees into a supplemental and qualified retirement plan. Employers are also required to make minimum contributions to the plan.

The statutory employer and employee minimum percentages that employers are required to contribute depend on how employers define pensionable earnings.

Effective April 2019, the new statutory employer minimum contributions will range from 3% to 4% of pay, and employee minimum contributions from 4% to 5% of pay, for total combined statutory minimum contributions from 7% to 9%.

"The information provided in this update should not be construed as legal advice. The content is intended as a general overview of the subject matter. No action should be taken on the basis of any content in this update without seeking appropriate legal advice regarding your particular situation."

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