Pensions Act touches depths of absurdity
There has been a lot of discussion recently about pensions. Trust me, there will be a lot more in the future. Most government pension systems are no more than a Ponzi scheme — a promise of money at a future time in exchange for payment today. You are not buying a service or a product, just a “promise”: hence it is a “scheme” and, in fact, would be illegal, except ... it’s the Government.
Make no mistake, governments would prefer that we all die off tidily at an appropriate age to ensure that the pyramid stays pointed at the top and broad at the bottom — full of young and middle-aged, income-producing individuals at the bottom of the ladder to pay for those at the top.
What could possibly go wrong? Various reasons, one being that people are refusing to die on cue. We are living longer and costing more as we age. We have just been through one of the worst recessions ever ... the new potential income-producers were struggling to find work. Those already in work were getting laid off.
Suddenly, the stable pyramid began to wobble as it took on a dangerously new shape: narrowing at the bottom and staying the same at the top. Heaven forbid it should topple over. What do governments do? They simply change the goalposts and increase the retirement age.
But where it gets really absurd is when it comes to the workplace pension.
Bermuda prides itself as an international financial centre. I should know; I spent my time promoting it over ten years back as chief executive of the former Bermuda International Business Association. It boasts a sensible, flexible approach to international business, and the regulation and legislation to go with it. However, much like the cobbler who neglects his own children’s shoes, the local Pensions Act lets some Bermudians down ... and badly.
You and your employer pay into a private pension throughout your career and are then forced to purchase an annuity — effectively an insurance policy that pays out a sum each year calculated on your retirement savings and estimated life span.
This works fine if you have been paid well in Bermuda during a long working life and have amassed a tidy sum that will give you a meaningful payout each year.
In other countries you have options. In Britain, for example, you can now take out that pension as a lump sum and invest it as you wish.
Sensible: less than zero
Where the Pensions Act fails particularly miserably is in the case where Bermudians have not amassed a huge sum for one reason or another: their salary may have never been very high, they may have lived overseas for part/most of their careers, they may have lost a chunk of change from their pension during the recession ... or even all of the above.
What happens is that the yearly payment is so low, so utterly meaningless, that it is of no use to anyone alive.
Other countries have sensible “triviality thresholds”. This means a person can take their pension out as a lump sum if it is below a certain amount. The British threshold used to be £30,000 before it was scrapped altogether. Bermuda’s present triviality threshold is $10,000 — absurd in the extreme. Someone with a workplace pension of $15,000 may as well write it off. In fact, someone with a $50,000 pension may as well write it off as money denied them by the Government because an annuity of $50,000 would amount to about $2,000 a year.
What’s that? A weekend in New York or, broken down, about enough for a monthly cut-and-colour at your favourite hair salon, or maybe enough for a couple of bags of groceries each week. In other words, it’s of no use to you alive.
The argument is that Bermudians are “unsophisticated” — a polite term in the business world for “stupid”. If allowed to take our money out as a lump sum, as they can in Britain, we will blow it all and end up on welfare. The fact is, with an annuity that is peanuts, we will end up on welfare anyway.
This argument does not hold water. People in Britain took their pensions and paid off mortgages, added value to their homes by renovating them, paid to get their grandchildren on the property ladder ... they did not, as predicted, treat that money as a lottery win. We Bermudians deserve the same trust.
The Pensions Committee and the new government have an opportunity, indeed a duty, to breathe fresh air into an Act that is prejudicial to a cross-section of Bermudians. It is not difficult to look at what Britain has done. After all, our laws are based on British Common Law that is much respected by international business. What the Act requires is a commonsense approach and flexibility.
New options need to be considered. The Pensions Commission needs to take a long, hard look at remedying situations where a person’s workplace pension is of no use to them alive. That is not what it was designed for and clearly is untenable.
If your workplace pension is only of use to your beneficiaries when you are dead, ie, effectively a life insurance policy, then speak to your MP or write to the Pensions Commissioner.
It is time we took control of what is, effectively, our hard-earned savings. In turn, I see this as an excellent opportunity for the new government to make its mark by taking positive and immediate steps to address what is patently nonsensical.
•Deborah Middleton is the former chief executive of the Bermuda International Business Association, and the author of two published murder mysteries, Square Snapper and Never too Dead to Talk, with a third to be published shortly