International news - March 2014

A roundup of recent worldwide news and developments in the pensions arena, by Anne Bennett, Mercer

Portugal: retirement age increase and proposals for further tax on pensions

Measures to raise the retirement age from 65 to 66 for 2014 and 2015 took effect from 1 January 2014. Future increases in the pension age will be linked to changes in life expectancy. The move is expected to save €205m in 2014.

The government has also announced proposals for further temporary austerity measures, as part of the drive to reduce the budget deficit to 4% of gross domestic product by the end of the three year EU bailout programme, scheduled for mid-2014. The constitutional court has rejected several other cuts, resulting in the need to find alternative savings.

Details of the measures have yet to be specified, but one expected move is to increase the scope of last year’s special tax on pensions. This is levied at between 3.5% and 10% on pensions of at least €1,350 a  month. It is thought likely that the tax will be extended to lower levels of pension, possibly from €1,000 a month, although an increase in the rate of tax is also a possibility. Another possibility is an increase in the 2.5% contribution rate paid by public sector workers towards their pensions.

Czech Republic: government aims to close second pillar pension system

The new government has announced its intention to close the relatively new second pillar system by 2016 and will be setting up a working party to decide how to transfer funds. The current proposal is to move funds to the long established third pillar, with a more controversial possibility being to merge funds into the state system. The second pillar was established at the start of 2013 and only around 84,000 people have signed up. It is funded by a 3% contribution diverted from the state pension contribution plus 2% from employees’ salaries.

Canada: Quebec passes legislation on voluntary retirement savings plans (VRSPs)

Quebec’s national assembly has passed a bill creating VRSPs in the province, following last year’s enabling legislation at federal level, which will take effect on 1 July 2014. There will be a requirement to offer a VRSP, applying to employers with at least five employees who do not already offer a suitable workplace savings plan. This will be phased in between 31 December 2016 and 1 January 2018 depending on employer size. Employers can contribute, but are not required to do so. Employees will be automatically enrolled once they have one year of service, but will have the option to opt out or change their contribution levels. The default employee contribution rate will be 2% of salary, rising in stages to 4% by 1 January 2018. VSRPs will also be available on an individual basis.

Anne Bennett is a retirement senior associate at Mercer.