Lost generation’ faces pension struggle
People aged 55 and over are the “lost generation” of the pensions world, an expert warned yesterday.
Miguel DaPonte, senior vice-president for BF&M Investment Services, said: “It’s difficult to say because we get a range of individuals who come in, but a lot of people who come in can’t meet the average costs that a Bermudian would face.
“They are relying heavily on social insurance to help pay the bills at the moment and on family members to help make ends meet.”
But Mr DaPonte said social insurance payments would be cancelled out by the cost of Government-sponsored healthcare plans like FutureCare.
Mr DaPonte was speaking after a breakfast seminar on pensions and the cost of retiring in Bermuda, presented by the Bermuda Chamber of Commerce and sponsored by BF&M.
He said that mandatory pension schemes, where employees and employers pay five per cent of salaries each into pension funds, were relatively new in Bermuda compared to other countries.
He added: “I would say 55-year-olds are on the cusp. Definitely people five to seven years away from retirement will struggle because the system has only been around for 12 years.
“There’s not been time for them to build up a big enough balance.”
But he added: “One good thing the lost generation has going for them is they came through the 1980s and 1990s boom and they own property. They can live in their house, but they can’t pay their bills.”
Mr DaPonte said, however, that those 20 years from retirement “should have enough to do it but they may have to save more than the ten per cent”.
He added: “For those 40 and below, 10 per cent gets them to the cusp — 15 per cent would be ideal.”
Mr DaPonte said: “There are only two things you can do — increase the retirement age so people have more years to save or increase the retirement rates.
“And it’s always tough to raise contribution rates in a poor economic environment.”
He told the Chamber meeting that later retirement would mean “people will have a higher balance and that balance can be spread over fewer years. Extending the retirement age would be a good thing.”
Mr DaPonte explained that low interest rates over the past few years had dented many pension plans.
He said: “Market rates over the past 15 years haven’t done as well as they have historically. That hasn’t helped.”
And he added that a shift away from defined benefit pensions, which paid a fixed rate on retirement, to defined contribution pensions, which are subject to fluctuations in investment values, had also affected people’s plans for retirement.
Mr DaPonte said a “lot of people didn’t fully grasp the implications” of the change from defined benefit to defined contribution.
And he added that Bermudians’ tendency towards a conservative approach to investment coupled with low to zero interest rates had also hit pensions.
He said: “It will be difficult for Bermudians over the next five to ten years when they come to retire.
“More people than ever will be retiring over the next five to ten years, so it’s important they come out and seek the help of people at BF&M and other financial institutions to try and make ends meet.”
But he stressed: “One of the key things to take away is that the system isn’t broken, it’s just young.”
And he said that people aged under 40 should be able to meet their pension goals over their remaining working life.
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