A look at national pension scheme regulations
Dramatic changes to the Bermuda National Pension Scheme (Occupational Pension) Act 1998, the contributory benefit pension plan designed for all eligible employees in the private sector workforce, were announced by the Bermuda Government last month.
At the end of 2017, some 3,096 employers and 22,006 employees/self-employed persons were participating in registered plans, according to the Bermuda Pension Commissions 2010-2017 annual report.
The changes announced last month were generally welcomed by participants invested in this private business sector pension structure, they include a 25 per cent lump sum withdrawal option at retirement; one-year vesting; more uniform disclosures of administration and management fees; non-Bermudian worker inclusion; and greater civil recovery powers, interest and penalties for non-compliance, delinquent account employer.
One attention-getting item in the amendment is the temporary ability (to 2021) to reduce the pension contributions from 5 per cent employer and 5 per cent employee-match to a 3 per cent match as long as the employers contributions are current and the employee agrees to the action.
For years, the message from finance the world over, including governments, has stressed the need for every working person to be responsible in saving early and consistently for his or her retirement.
The rational stated for this departure from retirement saving, was that the [combined] 4 per cent reduction to pension contributions will provide more cash in pockets today.
But, it is also a permanent missed opportunity of 8 per cent (two years) of pension asset contributions for long-term capital appreciation for the future. Since numerous taxes have increased, that 4 per cent, annually, may be completely absorbed by such, with government the only real beneficiary.
Additional commentary in the last few months has focused on initiatives (paraphrased) to bring back to Bermuda some of the billions of pension portfolio accumulations invested overseas, in order to encourage investing for the benefit of local existing and new businesses start-ups.
Moneywise assumes the pension accumulations mentioned are specific to the private business sector workforce participants, and are not connected to the civil service/ministers superannuation pension plans.
The words investment portfolio always conjures many questions in this respect some of which may be answered by reviewing the second supporting role legislation to the original 1998 Act, the Bermuda National Pension Scheme (General) Regulations 1999.
It can be found through www.bermudalaws.bm, and then following the path, Laws > Annual Laws > 1999 > Statutory Instruments > National Pension Scheme (General) Regulations 1999.
The regulations document the current terms and conditions that the providers, the administrators, the self-employed, the actuaries, the portfolio managers must adhere to, namely:
Investment policy statements.
Prohibited and/or restricted assets.
The obligation to provide consistent financial reports.
The protection of annuity contracts.
The serious trust responsibilities for the employer and more.
The regulations are divided into six parts:
Part I preliminary
Part II registration and administration of pension plan and approval of trustee
Part III winding up
Part IV self-employment pension plans. Self-employed persons in the business private sector must all register and have to participate in the pension plan by law.
Part VI actuarial and fund management including A Interpretations; B Funding, C Sales, Transfers and New Plans; D Calculation of Assets and Liabilities and Reports; E Supplementary Provisions; and First Schedule Application Forms; Second Schedule Fees.
Part V pension fund investments. Space only permits a partial review of relevant portions of this very detailed section set forth:
25, Interpretation. Lists and details various investment terms.
26, Duties of administrator. The administrator shall ensure that the selection of investments is such as to:
avoid undue risk of loss or impairment; and
create a reasonable expectation of fair return or appreciation.
27, Investment policies and goals. The administrator shall maintain a written investment policy statement with goals that will identify the investment plan, the nature of the liabilities and shall contain certain guidelines:
the investment portfolio diversification including the aggregate and individual investment limits;
the asset mix policy and rate of return expectations;
the categories and subcategories of investments that may be made;
the policy to be followed where there is an actual or perceived conflict of interest on the part of the administrator, a member of a committee or board of trustees or any employee or agent of the administrator;
minimum disclosure requirements with respect to an actual or perceived conflict of interest including the timing of the disclosure;
the lending of cash or securities;
the retention or delegation of voting rights acquired through pension plan investments; and
the basis for the valuation of investments that are not regularly traded.
28, Defined contribution pension plan administrator must assure that a range of investments is offered to members.
29, Requirements for pension fund investment. Enumerates the concentration limits of any single company, person, association, etc.
30, Mortgages. Specifies limitations on mortgage securities.
31, Assets of pension fund cannot be pledged or mortgaged, unless permitted by regulations.
32, Borrowing. Not allowed without Commission approval.
33, Investment in real estate limited to 5 per cent of pension total market value in any single real estate parcel.
34, Conflict of interest self explanatory!
35, Prohibited loans and investments. The pension assets cannot be loaned or invested in securities where not traded publicly of, eg material persons, administrator, officer, person holding/investing pension assets, trade union representing members, etc.
36, Assets, etc, to be in name of pension fund.
37, Acceptance of bonds, etc, by pension fund.
There you have a tiny, tiny overview of the regulatory rules and constraints to manage the pension plan. Any one of these conditions, itself, is sufficient for an investment thesis.
Back to the government suggestion of proposed (assume elective) utilisation of pension investments locally, how will this idea be handled?
Who will supervise these new start-ups? Obtain audited financial statements? Review their operations? Decide the investing format: equity participation, loans, currency?
How will these new entities be backed, in the event of losses? Government guarantee, another Bermuda venture capital fund?
Questions, questions? What do you think, readers?
Martha Harris Myron CPA CFP JSM: Masters of Law international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. All proceeds earned from this column go to The Reading Clinic. Contact: email@example.com
Realtors: allow guest workers to buy condos
Mexican food trailer prepares to roll
Plan to legalise cannabis use, cultivation
Dwelling together in unity
New OBA senator delivers maiden speech
Minimal interest in foreign lottery records
It really is tighten-your-belt time
Dallas to step down from BTA
Community invited to join peace walk
We have no bananas: pest hits imports
Santucci defends public schools system
Economist warns to expect deficit of $30m
Defence opens case in Gibbings murder trial
Having designs on the carnival scene
Candidates agree Olde Towne needs a boost
Take Our Poll