Global Retirement Update March 2014 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.

Action May Be Required Norway—The Occupational Pension Act, effective January 1, 2014, allows employers to offer a hybrid pension plan instead of the traditional defined benefit (DB) and defined contribution (DC) plans. Under the hybrid plan, employers choose an investment option, subject to a guaranteed rate of return. The maximum annual contribution to the plan is 7.0% of pay up to 12 times the Base amount (“G”) established by the National Insurance Scheme (the current G is NOK 85,245). Employers also may pay a supplementary contribution up to 18.1% of pay between 7.1 and 12 Gs. Hence, the maximum contribution is 7.0% of pay up to 7.1 Gs and a total of 25.1% of pay between 7.1 and 12 Gs. Employer contributions are tax deductible, and employees do not pay tax until they receive their pension benefit. A slightly higher annual contribution for women will be established to accommodate their longer life expectancy. The Act also raised the maximum contribution levels for DC plans. Until December 31, 2013, maximum contribution levels were 5.0% of pay from 1 to 6 Gs and 8.0% of pay from 6 to 12 Gs. The new maximum contribution limits are 7.0% of pay from 1 to 7.1 Gs and 25.1% of pay from 7.1 to 12 Gs. Employers have until January 1, 2017 to adjust their contributions to the new “inflection point” of 7.1 Gs. The Act does not require any changes to existing DB plans. Employers offering DB plans may wish to consider either a hybrid or DC plan given the increase in contribution limits.

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Recent Developments Americas The U.S. Pension Benefit Guaranty Corporation (PBGC) released final regulations related to reducing the regulatory burden. Specifically, based on its regulatory review under Executive Order 13563 (Improving Regulation and Regulatory Review), the PBGC proposed to simplify due dates, coordinate the due date for terminating plans with the termination process, make conforming and clarifying changes to the variable-rate premium rules, give small plans more time to value benefits, provide for relief from penalties, and make other changes. The agency recently finalized the part of the proposal that eliminated the early payment requirement for large plans’ flat-rate premiums. This latest action finalizes the rest of the proposal. The final regulations are effective on April 10, 2014. The changes are generally applicable for plan years starting on or after January 1, 2014. The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) released proposed regulations that include an amendment to the final regulations (issued February 2012) under ERISA requiring that certain service providers to pension plans disclose information about the service providers’ compensation and potential conflicts of interest. The latest amendment would require covered service providers to furnish a guide to assist plan fiduciaries in reviewing the disclosures required by the final regulations if the disclosures were contained in multiple or lengthy documents. According to EBSA, the guide must specifically identify the document, page or other specific locator, such as section, to enable the employer to quickly and easily find fee information. This amendment would affect pension plan sponsors and fiduciaries and certain service providers to such plans. Comments on the proposed regulations are due by June 10, 2014. In the United States, President Obama’s 2015 budget proposal provides a framework for priorities in the upcoming year and offers insight regarding future legislative and/or regulatory actions on issues related to retirement. The budget imposes a limit as to how much individuals could accrue in defined contribution and defined benefit plans. The 2015 cap is set at “an amount sufficient to finance an annuity of not more than USD 210,000 per year in retirement.” This proposal is estimated to generate approximately USD 28 billion in savings, which would be applied to the Opportunity, Growth, and Security Initiative. Additionally, the budget includes the MyRA savings bond plan, which was unveiled during the President’s recent State of the Union address (refer to the February 2014 Update). Other retirement provisions include, but are not limited to: --Automatic enrollment in IRAs for employees lacking an employer savings plan, which could include small employer tax credits; --A USD 20 billion increase in Pension Benefit Guaranty Corporation (PBGC) premiums over 10 years. The PBGC Board of Directors would be authorized to adjust premiums in single- and multi-employer programs; and --Granting the Internal Revenue Service authority to require electronic filing of Form 5500 for all plans, including small employers. Canada’s federal government has proposed Regulations Amending the Canada Pension Plan (CPP) Regulations to prescribe the meaning of “substantially gainful” with respect to an occupation. To qualify for a CPP disability pension, a person must have a severe and prolonged disability that results in the person being incapable of regularly pursuing any substantially gainful occupation. While a “substantially gainful” occupation is one of several

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key factors used to determine when a person is deemed disabled for disability pension purposes, it is not defined by the CPP or the CPP Regulations. In the absence of a regulation, there is currently a lack of transparency with respect to the benchmark to be used by tribunals, courts, and CPP disability pension applicants and beneficiaries, when determining earnings above which a person is deemed to be pursuing a “substantially gainful” occupation. The proposed amendment to the CPP Regulations would specify a calculation for substantially gainful, with respect to an occupation, equaling 12 times the maximum monthly disability amount. The CPP disability pension is indexed annually pursuant to the CPP to allow for inflation. The government expects that the proposed amendment will have minimal cost implications for the CPP. The Dominican Republic’s Council on Social Security passed a resolution approving the indexation of pension benefits. Law 87-01, which established the social security system, included a provision for benefit indexation but it was never implemented. As of February 13, 2014, retroactive indexation is based on the Consumer Price Index. Going forward, indexation will be based on changes in the national minimum wage.

Asia The Australian government has closed consultation on amendments to the Future of Finance Advice legislation. Key elements of the legislation include: removing the opt-in requirement; ensuring the requirement to provide the annual fee disclosure only applies to new clients as of July 1, 2013; removing the catch-all provision from the best interests duty; explicitly allowing for the provision of scaled advice; exempting general advice from the bank on conflicted compensation; and broadening the existing grandfathering provisions for the ban on conflicted compensation. Singapore’s 2014 budget would increase Central Provident Fund (CPF) and Medisave contribution rates. Employer CPF contribution rates would increase by 1.0% for employees age 50 to age 55 and by 0.5% for employees age 55 to age 65. The increased contribution would be allocated to the Special Account. Employees age 50 to age 55 would contribute an additional 0.5%, which would be allocated to the Ordinary Account. Also, the employer Medisave contribution rate would increase by 1.0%.

Europe In the United Kingdom, the 2014 Budget includes wide-reaching proposals to increase flexibility for defined contribution (DC) funds. Chancellor George Osborne’s 2014 Budget includes two main measures affecting pension schemes: --Changes, effective March 27, 2014, that allow additional flexibility for drawdown (increasing the maximum income from 120% to 150% of an equivalent annuity) and extra scope for trivial commutations (increasing the total pension wealth that people can have before they are no longer entitled to receive lump sums from GBP 18,000 to GBP 30,000 and increasing the amount for small individual pension pots that can be taken as a lump sum regardless of total pension wealth from GBP 2,000 to GBP 10,000). --A consultation on proposals to provide significantly more choice for those with DC pots from 2015. Full access to DC funds would be allowed as cash lump sums or unrestricted drawdown, subject to the marginal rate of income tax, with the facility for 25% as a tax-free pension commencement lump sum as at present. Individuals who want

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an annuity would still be able to purchase one, and the government proposes to guarantee that everyone with a DC pension would be offered a “guidance guarantee” of free face-to-face guidance on their financial choices. The proposals would not apply to defined benefit (DB) arrangements. DB members could transfer to DC arrangements to take advantage of the changes, but the government is concerned with the risks for members and the economy, and is seeking views on various options to limit transfers from DB to DC arrangements. For public-sector schemes, the government intends to legislate to remove the option to transfer to a DC arrangement, except in very limited circumstances. The consultation also proposes to raise the minimum pension age from age 55 to age 57 in 2028 (when the State Pension age increases to age 67) and thereafter to retain it at 10 years below SPA. The U.K. Pension Protection Fund (PPF) published a statement that provides an update on the work it has been undertaking with Experian, the new insolvency risk provider for levies from 2015/16. This latest statement provides some further certainty for pension schemes on the PPF’s “direction of travel” and sets out timescales for next steps. Key points are: --Experian has designed a “PPF-Specific Insolvency Score” for each employer, access to which will be provided to each scheme through a free web-based portal; --The PPF-Specific Insolvency Score for any given employer will be determined using one of eight new scorecards developed by the PPF, with each scorecard having five to seven sub-factors which are based mainly on the sponsor’s last filed financial statements. --The PPF will publish a consultation with its plans for the new levy framework, including further detail on PPF-Specific Insolvency Scores and their impact on levy calculations at the end of May 2014. The PPF-Specific Insolvency Scores will be made available by Experian at the same time; and --The PPF intends to measure PPF-Specific Insolvency Scores for 2015/16 levy invoices at each month-end from October 2014 to March 2015; i.e., a six month average rather than the normal 12-month. The U.K. government has tabled an amendment to the Pensions Bill that would require pension providers to disclose all transaction costs related to workplace defined contribution pensions. The amendment is part of the government’s initiative to introduce greater transparency and fairness to pension costs. The government reiterated its intention to cap pension charges. It will soon publish its response to a consultation on pension charges launched in October 2013 along with details on the transparency and fairness measures. In England and Wales, same-sex couples have the right to marry, effective March 13, 2014. The Civil Partnership Act 2004 gave same-sex couples the right to register as civil partners. The Marriage (Same Sex Couples) Act 2013 enables same-sex couples to marry. The government’s stated intention with regard to both state and occupational pension rights was to not discriminate between opposite-sex married couples and same-sex married couples. However, provisions of the 2013 Act permit discrimination to remain with respect to service before December 5, 2005 (occupational plans are exempt from having to provide benefits to surviving civil partners for rights accrued before December 5, 2005). Also, Guaranteed Minimum Pension and related provisions apply to individuals in same-sex marriages, subject to the same restrictions that apply to civil partners. Hence, they apply from April 6, 1988 (the date when survivors’ rights were equalized for widows and widowers).

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To address potential concerns over discrimination, the Secretary of State must complete a review of the operation and future of the Civil Partnership Act 2004, and issue a report before July 1, 2014 regarding differences in survivor benefits under occupational pension schemes and the costs of eliminating those differences. In the Netherlands, the lower house of parliament approved a pension bill that would reduce the tax-deductible accrual rate. If enacted, effective January 1, 2015, the maximum pension accrual rate would be reduced from 2.150% to 1.875% for average pay plans and from 1.900% to 1.675% for final pay plans. Pensionable income would be capped at EUR 100,000. Further study is required on the introduction of a net annuity for pensionable income exceeding EUR 100,000. (Refer to the January 2014 Update for additional information.) In other pension-related news, the government has announced that it plans to clarify a works council’s codetermination right on pension plans. Works councils would have the right to consent to proposals on the adoption, amendment, or withdrawal of a pension plan, regardless of the type of pension administrator. Belgium’s National Labor Council (NLC) has published its advice on the harmonization of occupational pensions for blue- and white-collar employees. It recommends that any distinctions in occupational pension plans be eliminated by January 1, 2025. This date would apply to industry-wide and company-level plans. Different treatment prior to this date would not be considered discriminatory. Once the existing Act on Occupational Pensions was amended or replaced by a new act, a “standstill” period would commence. New plans could not treat blue- and white-collar employees differently, and existing differences could not increase. The harmonization of industry-wide pension plans should be resolved before the process is started at the company level. However, all plans would be have to be harmonized by the same date. In 2011, the Constitutional Council ruled that employment terms and conditions for white- and blue-collar employees had to be harmonized. The European Court of Justice recently ruled that management costs associated with occupational defined contribution funds in Denmark are exempt from the Value Added Tax (VAT). The case was filed by the Danish pension provider ATP, which claimed that DC funds share characteristics with Undertakings for Collective Investment in Transferable Securities (UCITS) and special investment funds (SIFs) and should be classified as a SIF. The ECJ agreed, ruling that pure DC funds, where the assets’ owners and beneficiaries bear the risk of investment, are entitled to the VAT exemption for investment and administrative services. To promote employment, the Spanish government is reducing social security contributions for employers that hire employees on permanent contracts. Royal Decree-Law 3/2014 was published in the official gazette on March 1, 2014. Employers that hire employees, full- or part-time, on a permanent employment contract will be assessed a flat social security contribution fee for “general risks.” Contracts must be signed between February 25, 2014 and December 31, 2014. The flat contribution is EUR 100 per month for full-time contracts; EUR 75 per month for part-time contracts when the employee works 75% of the regular workday; and EUR 50 per month for part-time contracts when the employee works 50% of the regular workday. Employers will pay the flat-rate contributions for a 24-month period. Small- and medium-sized businesses (less than 10 employees) will benefit from a reduction for a third year equal to 50% of the contribution for general risks. To qualify for the reduced contribution, employers must not have any unjust individual or collective dismissals in the six months prior to time of hiring an employee on a permanent contract. Employees cannot be dismissed and rehired. There must be a net increase in the number of staff, and employers must maintain employment for three years.

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In Slovakia, individuals may soon have more options for the withdrawal of their second-pillar pension funds. Currently, second-pillar benefits are paid out by the pension fund administrator. Under pending legislation, individuals would be permitted to purchase a life annuity from an insurance company with their funds. The European Insurance and Occupational Pensions Authority (EIOPA) published a preliminary report entitled “Towards an EU Single Market for Personal Pensions” in February 2014. The goal of the report is to lay the foundation for future European Union (EU) initiatives aimed at fostering adequate, safe, and sustainable pensions for EU citizens. In its analysis, EIOPA notes that taxation, social laws, and contract laws continue to be significant hurdles to the creation of a single market for personal pensions. It has identified two options for the creation of this market: --Introduction of common EU rules for all existing and future personal pensions by way of directive that would enhance consumer protection requirements to cover a wide variety of pension products; or --Introduction of a European regulation that would accommodate differences among Member States. The regulation would enable the transferability of capital and provide standardized product rules. In May 2013, EIOPA published a Discussion Paper on a possible EU-single market for personal pension products, defined as plans that host members only on an individual basis. These plans do not have to be linked to an employment relationship, although employers might contribute.

Middle East and Africa The Israeli government is reviewing a proposal to raise the retirement age. To accommodate changes in life expectancy, the Finance Ministry proposes to raise the retirement age from age 67 to age 70 for males and from age 62 to age 64 for females. The retirement age would increase by four months each year until it reached age 64 for females in 2020 and age 70 for males in 2023. In related news, the High Court of Justice has ordered the government to explain why age 67 is a mandatory retirement age and not a voluntary age, noting that under current working and living conditions employees may prefer to work longer. Egypt’s Social Security Authority may increase the number of contributions for an early retirement pension. Currently, a pension based on average monthly earnings is payable at age 60 with 120 months of contributions; at age 55 with 240 months of contributions; or at any age on a reduced basis, also with 240 months of contributions. The Authority may extend the number of contribution months for an early retirement pension to 300. The tax treatment of retirement savings will change effective March 1, 2015 in South Africa. Under the Taxation Laws Amendment Act of 2013, employer contributions to all retirement funds—pension funds, provident funds, and retirement annuity funds—and to group life insurance plans will be added to an employee’s taxable income as a fringe benefit. Employees will be permitted to deduct their contributions and their employer’s contributions up to 27.5% of pay or taxable income, whichever is greater. A ZAR 350,000 cap will be placed on the amount that may be deducted annually. Contributions that exceed ZAR 350,000 may be rolled over to a year when deductions do not reach the cap. Provident funds will be subject to the same rules as pension funds—two-thirds of the amount must be used to purchase an annuity. **** Copyright 2014 Aon plc

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For more information on the topic and countries in this newsletter, please refer to the Aon Hewitt Country Profiles eGuide. You can learn more about the Country Profiles eGuide here.

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Copyright 2014 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.

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