Pension fund ‘will run out by 2049’

  • Auditor-General Heather Thomas

    Auditor-General Heather Thomas

The management of Bermuda’s pension fund must be improved and the Government should take immediate action to get its annual accounts up to date.

Legislators were also asked to implement a string of proposals first put forward by spending experts more than four years ago.

The calls came in the latest report by Heather Thomas, the Auditor-General, amid concerns that more people will draw from the retirement pot while fewer pay in as the island struggles with the effects of an ageing population.

A 2014 review of the Contributory Pension Fund predicted that, even in a best-case scenario, the money would run out in 2049.

Ms Thomas said in her report, issued last week, that the last audited financial statements for the CPF were for the year ended July 31, 2012.

Contributions from the present workforce allow payments from the CPF for old-age pensions and disability and death benefits for the general population, but there is no provision for any shortfall to be covered by the country’s normal Budget.

Ms Thomas said it was “essential” that the fund was well managed for that reason.

The Sage Commission found in its 2013 report on spending and efficiency that contributions at the time were not expected to be enough for the CPF to survive.

As well as a bigger percentage increase in annual contribution rates compared with benefit increases, the Sage group proposed a plan to raise the pension age to 68.

Canadian company Morneau Shepell Ltd also carried out an actuarial review of the fund as it was in August 2014, and gave CPF projections for 50 years up to 2064.

Ms Thomas said its main findings included that “the CPF was projected to increase gradually until 2021 then decline steadily until it was exhausted in 2049 under the best-estimate scenario”.

The fund’s total outgoings were forecast to exceed inward payments for the duration of the period.

Other findings were that a 10 per cent increase in contributors or raising the retirement age could help sustain the life of the CPF.

Ms Thomas said the actuarial review recommended setting a target “benefit/contribution ratio”, and ensuring that predicted payments into the fund were “feasible and affordable”.

Michael Fahy, then Minister of Home Affairs, said in 2016 that the CPF was underfunded by $2.07 billion and without a reversal in population trends, Bermudians would need to retire at a later age, pay more or receive less from pension funds.

Ms Thomas gave an unqualified opinion that the Government’s financial statements for the four fiscal years from March 2012 to March 2016 fairly presented the position of the Consolidated Fund, which is the Government’s general operating fund.

But she raised concerns and pointed out that the last audited financial statements for the CPF were from 2012.

She also referenced the related audit report by her predecessor, Heather Jacobs Matthews, who said “due to serious deficiencies” in the CPF’s accounting records, she was not satisfied that all assets, contributions and outgoings were shown or that the transactions recorded were an accurate reflection of the 12-month period.

It meant she was unable to gather enough evidence to provide an opinion.

Ms Thomas wrote: “Given that Bermuda’s ageing population relies on the CPF for a minimum income after retirement and will continue to do so in the future, the situation described above is completely unacceptable.”

She called on the Government to “consider and act upon the recommendations of the Sage Commission and the actuarial review as at August 1, 2014, with respect to the CPF contribution rates and the retirement age and take immediate steps to bring the CPF annual financial statements up to date, and review and take appropriate steps to improve the administration of the CPF”.

The Ministry of Finance claimed the Government had “considered” recommendations and had taken “some steps” included in the reports in a response included in Ms Thomas’s report.

The ministry said the short to medium-term outlook for the fund was good.

The statement added: “As at 30 June 2017, the fund had total assets of over $1.796 billion, representing approximately 11.7 times the annual value of benefits paid in the 2016-17 fiscal year.

“However, recognising the long-term challenges of the fund, the ministry will continue to closely monitor the performance of the fund and take the appropriate steps to enhance the benefits paid from the scheme as well as ensure the fund has the ongoing ability to pay for such benefits.”

It added: “The Accountant-General has dedicated resources to bring the CPF annual financial statements up to date.”

The ministry also said steps were being taken to improve efficiency in the Department of Social Insurance.

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Published Aug 16, 2018 at 8:00 am (Updated Aug 16, 2018 at 12:21 am)

Pension fund ‘will run out by 2049’

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