HR Exchange Forum October 5th 2004 Royal Holloway University of London

1. HR Exchange ForumOctober 5th 2004Royal Holloway University of London

2. Snapshot of the results of the CHRP Employee Absence Survey Jacquie Mahoney Corporate HR Partners Ltd

3. Employee Absence Survey 2004 Following the survey we ran last year on employee assistance and absence programmes, this is a topic where we have continued to receive questions from clients, and specifically around policies and strategies to manage this. Most Human Resources professionals constantly need to check where the market is sitting and what are the changes which are developing in order to keep their employment practices at the optimum.  We thought it would be helpful to assess where the market currently sits one year on, and devised another quick and simple email based survey which we circulated amongst clients, members of our affinity groups, friends and other interested contacts.

4. Companies in the Survey Responses • There were 25 responses to the survey. • Respondents were mostly from high-tech industries and included software, hardware, electronics, market research, telecoms, sheltered housing, pharmaceuticals and retail. • UK based employee numbers ranged from 46 to 22,000, with a median of 350.

5. Questionnaire • Absence Control Procedures • Days Lost • Sickness Policy/typical problems • Self Certification/Doctors Certificates • Sickness Payments/Services • Rehabilitation/Preventative Policies • EAP • Mental Health/Stress • General Wellness • Health Benefits Insurance • PHI • Medicals

6. Snapshot of the results of the International Salary Movements Survey 2005 Andrew Strathdee Corporate HR Partners Ltd

7. Salary Movements 2005 • Undergoing analysis at the moment • Can still participate at any time – let me have your data • UK figures to date • Lowest 0% • LQ 3% • M 3.75% • UQ 4% • Max 5%

8. How to Manage Your Boss Christina Osbourne Chief Executive Business Solutions

9. Coffee

10. A Guide to the Pensions Reform 2006 Andrew Strathdee Corporate HR Partners Ltd

11. The Pensions Crisis • Four main issues • Deficits in Funding (esp DB Plans) (Taxation, Aging population, Stock market performance) • Resulting switch from DB to DC • Companies withdrawing /closing plans – leaving some with no benefits • Increasing legislative complexity – currently 8 different sets of rules!

12. What is the Government doing? • Two actions • First - Pensions Bill • New Protection fund • New funding standard • Additional Requirements • Pensions Regulator • Trustee Requirements • LPI Pension Increases • Priorities on Windup • Financial Education

13. What is the Government doing? • Two actions • Second - Tax Simplification • Single Regime for all tax privileged arrangements • Applies from 6th April 2006 – “A” Day • Legislation in Finance Act 2004

14. The new regime - headlines • £1.5m lifetime allowance (£1.8m for 2010/11) • DB benefits valued at 20:1, regardless of age • DC benefits at Market Value • Transitional protection • 25% recovery charge on “excess assets” • Personal contributions up to 100% of earnings • £215k pa tax free contribution/accrual (10:1 conversion factor for DB Benefits)

15. The new regime • Up to 25% of value of benefits (max LTA may be taken as tax free cash • Pension to start between 55 and 75 (from 2010) (increased from 50 currently) • Flexibility to draw pension and continue working • LTA applies to death in service lump sum benefits (dependents benefits not included) (LTA = LifeTime Allowance)

16. Contributions • Annual contributions • Members will be able to put in up to the lower of annual earnings or £215,000 in the 2006/07 tax year. The maximum limit will be increased by £10,000 each year until it reaches £255,000 in 2010/11. • Everyone will be able to put in a minimum of £3,600 a year, as they can now, so anyone will still be able to contribute to a pension even if they're not earning.

17. Big Pension Pots • Headline grabbing and complex • Single Lifetime Allowance of £1.5m for 2006/07. If the value of all pension funds exceed this amount and the member retires in 2006/07, any excess will be taxed at punitive rates of up to 55% (although this partly reflects tax relief of up to 40% received when contributing to pension in the first place). • The lifetime allowance will increase to £1.6m in 2007/08 and then by £50,000 each year until 2010/11, when it will be £1.8m.

18. Big Pension Pots • Headline grabbing and complex • The amount of people that will be hit by this limit has been hotly disputed. It will be fairly small but, to put it in perspective, £1.5m will provide for an inflation-proofed joint income of around £70,000 at current annuity rates. This amount can be reached if you were able to invest £800 a month for 40 years (and increased the amount you invested each year in line with inflation).

19. Big Pension Pots Excess taxed @25% Excess over £1.5m £1.5m DC benefits @market value DB at 20:1 capital value Tax free lump sum 25% of Fund up to £375k Excess as pension less 25% Tax or if cash 55%

20. Big Pension Pots Fund at retirement (say 2014) £1,900,000 Excess over LTA £400,000 Recovery Charge (25%) £100,000 Net Fund £1,800,000 Pension taxed at 40% (which is 55% overall) If taken as lump sum taxed at 55% i.e. £220,000 Can take up to £375k of LTA as tax free lump sum

21. Recovery Charge • Should be deducted by Trustees from Benefits • Assessable on individual through self assessment • On death, payable by personal representatives • Assessed when benefit comes into payment

22. Protection • Primary protection • Register within 3 years of A-day • Identify total value of rights in excess of £1.5m at A-Day • Protects percentage of LTA (which increases to £1.8m by 2010/11 tax year

23. Transitional Arrangements • Enhanced protection • Can be used even if value is less than £1.5m at A-day • Any benefit in excess of current IR limits must be forfeit • No additional benefits can be earned on any pension arrangement after A-day (life cover can continue) • Pre A-day benefits linked to future pay increases or actual investment return if DC Plan • No Recovery Charge • Can subsequently opt out of enhanced protection

24. Small Pension Pots • Currently, all pension pots of more than £2,500 have to be used to purchase an annuity. However, from A-Day, 1% of the Lifetime Allowance in cash can be taken. So, in 2006/07, if the total of all of an individuals pension funds is less than £15,000 will be able to take this amount in cash. In addition, up to 25% of this amount will be available tax free. (The Association Of British Insurers reckons the average annuity purchase at the moment is not much more than £20,000, so this proposal will affect a lot of people.) • Impact: Anyone who has got a small pension pot that they're about to convert, it might be worth hanging on until after A-Day.

25. Death in Service Benefits • No automatic Earnings Cap or maximum multiple of pay • Lump sum up to LTA no tax, over LTA taxed at 55% • Dependents pension does not count to LTA but is taxed in payment • Increases potential benefits which can be provided but has effect on company’ costs and is subject to insurance limits • Consider change in plan design – due to different treatment of pension and lump sum

26. Considerations for Trustees • Current checks removed regarding members exceeding IR limits (contributions and benefits) • Recovery Charge should be deducted by Trustees • Changes to Rules, Plan booklet, employee announcements etc. • Member information

27. Where Next? • Finance Act 2005 (possible changes • Regulations summer (?) 2004 • Pensions Bill 2004 • With Lords Committee this month • Regulations shortly • Codes of Practice shortly • Royal Assent November 2004

28. Round Robin

29. What’s New in Europe ? Quick review of what’s happening in EU countries Andrew Strathdee

30. EU • Working Time • Continuing saga – proposed revisions published • Voluntary 48 hr opt-out retained, but • Individual consent every time limit reached • Union or works council – collective agreement • Reference period extended from 4 to 12 months by agreement • On call time will be classed as inactive, so not necessarily working time!

31. EU • Discrimination • Commission goes to the European Court of Justice to enforce EU anti-discrimination law • Six?? Member States have failed to transpose two anti-discrimination Directives. The Directives, which prohibit discrimination on racial or ethnic origin, age, disability, religion and sexual orientation, were due to be incorporated into national law last year. The Commission will refer Austria, Germany, Finland, Greece, and Luxembourg to the European Court of Justice.

32. EU Odile Quintin, Director General,Employment and Social Affairs starts off the European anti discrimination Truck tour of 10 countries – Hungary, Slovakia, Czech Republic, Poland, Latvia, Denmark, United Kingdom, Ireland, France and Italy.

33. EU • New Report “On a Framework for the promotion of Employee Financial Participation” • Participation should be voluntary for both the enterprise and employees • Access should normally be open to all employees • It should be set up and managed in a clear and transparent way • It should use a pre-determined formula that should be linked to an enterprise’s performance or results. • It should be applied regularly basis rather than on a one-off basis • It should avoid unreasonable investment risks for the employees • It should not be used as a substitute for wages or salary • It should comply with the Information and Consultation Directive, requiring enterprises to consult with their employees before a plan was introduced but would not require prior negotiation or agreement with employees or their representatives • It should comply with EU labour law and should not treat the opportunity of belonging to the plan as an “acquired right” or as an item to be included in compensation for dismissal or as part of a basis for pension provision • It should contain rules based on EU legal and regulatory requirements

34. EU • Eurobarometer Paternity Leave Survey • 75% knew of the rights • 84% had not used it or did not intend to use it • 18% “could not afford it” • 42% said compensation was inadequate • 31% said “did not want career affected” • 20% said “did not want career interrupted” • 19% said “parental leave is more for women” • 10% said “Did not want to be stuck and home and have less social life”! • (answers are multiple so add to more than 100%)

35. EU • Paternity Leave Survey • Usage: • Sweden – 34% • Denmark – 10% • Finland – 9% • Germany, Spain, Austria, Ireland, Portugal – 1% • Luxembourg – 0% • Definitely a resounding success, then!

36. EU • Forrester Jobs Off-shoring Survey • Off-shoring likely to be low for most EU Countries • UK most affected, off-shoring 75% of total EU jobs to move • Greece, Ireland, Portugal and Spain have been most worried but unnecessarily • India and China will be major recipients

37. Austria • Apprenticeship system in crisis • Austria has lowest youth unemployment in EU • Young people seeking apprenticeships exceeds places by 3.5 to 1 • Youth population will continue to grow until 2008 • Target of 7,800 jobs by the end of November • Apprentices not being kept after completion –accusations of “cheap labour”.

38. Belgium • Measures to increase employment agreed • Target to grow start-ups and medium size firms • Eight part plan • Reduce income tax • Improve transition between education and work • Streamline work training, certifying acquired competences • Targeting training for the unemployed • Privatising some state employment activities • Job Market - Stop older workers leaving and induce youger workers to enter • Jobs in the social economy (sheltered workshops, ironing, cleaning, running errands!) • Anti discrimination programme

39. Cyprus • Major programme to control budget deficit • Has been helped by better then expected revenues • Action to control wage inflation, supported by employers, but may lead to industrial action • Inflation only increases for civil service and no career point progression • Tax amnesty implemented until 31st December, only taking 5% until December 6.5%, thereafter punitive!

40. Czech Republic • Growth in industry has not led to employment improvement • Q1 9%, Q2 13%, 36% increase in export demand • Real wages growth 6% for H1 • employment rates in industry fell by 4% due to modernisation and restructuring • Unemployment still 10% due to new graduates, not anticipated to fall due to rising productivity

41. Denmark • Danish Government have completed an analysis of 19 OECD Countries on impact of labour market policies – conclusions: • High level of compensation, strong trade unions and a high level of taxation on labour tends to increase unemployment. • Stricter control over the job search activities of the unemployed and a high level of spending on active measures lowers unemployment.

42. Denmark • Government is to conduct a campaign against the black market economy • Publicity that it is anti-social and risky • Financial sanctions for those caught • Aging government sector is problematic • 35% of government workers over 50 • 21% of private sector workers • Restructuring of public employment service from 2007

43. Estonia • Employers reject Works Council proposals • Proposal to incorporate EU rules into national law • Too much power to Trades Unions to appoint employee reps • Employer concerns over plan to make them finance health care salaries, via increased sickness payments.

44. Estonia Estonia bids for EU social fund projects (€30billion) • Training and retraining measures • Increasing employability of disadvantaged groups • Supporting women’s return to the labour market • Improving quality of labour market services. • Major strike over health workers pay pending

45. Finland • 2005 Budget under review • Incomes settlement targeted with moderate pay rises tied to tax reductions for average earners • Wealth tax changes by increasing threshold and lowering rate • Extension of domestic help credit to improve employment of domestic staff • Credit for work done by parents/grandparents • 30% of wages plus employer contributions eligible for relief

46. Finland • New Privacy law • Tight regulation of employee monitoring • Bans CCTV except for security • Safeguards email • Enables drug testing of employees where justified by nature of job or when employee suspected under influence or for job applicants where job involves a risk to others

47. Finland • New Education programme starts well • New programme to raise education level of those with only basic education aged 30 - 59 • 57% of those enrolled are between 45 and 59 • 3 out of 4 are women • 50% are improving computer skills • Proposal to Government to make employers pay 25% of travel costs as tax free benefit – active consideration being given

48. France • Unions Block 35 hour week changes • Negotiations mentioned last time collapsed last week • Problems will occur as recent deals have frozen pay levels and extended working week, so will the government let this continue?

49. France • Last time - Private bill introduced to extend negotiating period for settling disputes on redundancy with Government support, extending current suspension of Social Modernisation Law from July 2004 to sometime in 2005. • This time – both sides of industry have given up on agreement – over to the Government….

50. France • New 5 Year Social Cohesion Plan announced • Number of people on social assistance doubled in 15 years • Job creation initiative for 250,000 jobs by reducing barriers to entry to the market and assisting 100,000 unemployed into self employment