Bermuda’s public service pension funds will run out of money in 2045, meaning that today’s public servants — and some pensioners — will have no pension in two decades’ time unless something changes.

The Contributory Pension Fund, which provides pensions to all working Bermuda residents, will run out three years earlier in 2042.

This is not a new problem. The looming retirements of baby-boomers — the population bulge of people born between 1945 and 1964 — has been predicted since at least the 1990s. It was for this very reason that late United Bermuda Party premier and finance minister David Saul passed mandatory private pensions in the 1990s — and his successor-but-one, the late Eugene Cox, of the Progressive Labour Party, introduced the system after taking office in 1998.

Since then, it has been an ongoing worry, with then premier and finance minister Paula Cox saying around 2011 that the looming pensions shortfall was the issue that kept her awake at night.

Yes, despite various reform efforts over the years, the general approach of governments of all political stripes has been to kick the can down the road and leave it for a successor to deal with it. But this is a problem that will not go away, while ignoring it will only make it worse.

Indeed, some government measures have been defeated by subsequent actions.

Curtis Dickinson, as finance minister, led the drive to raise the retirement age for civil servants to 67 in 2019, which should have ameliorated the situation. Before the increase, the fund was forecast to run out in 2044.

However, a year later, the Government, with Mr Dickinson still in his post, suspended payments to the PSSF as a result of the Covid-19 pandemic. While that decision was widely supported at the time and could be justified given the scale of the emergency Bermuda faced, the effect on the PSSF was to delay the likelihood of the fund running out of money by just one year. Instead of going bust in 2044, it would fail in 2045.

The result is that the fund takes in less in contributions than it takes out in benefits, while investment returns are surprisingly volatile, meaning they cannot be relied on to make up the difference.

In 2023, the fund took in $60.4 million and paid out $95 million while the fund’s investments lost $8 million, compared with a $150 million profit two years earlier.

Now the Government proposes to increase the retirement age to 70, to provide a pension based on the average salary of a government employee over the previous decade rather than an employee’s last year of employment, and to increase pension contributions by 2 per cent over a period of time.

While these changes will be hard for public servants to swallow, the alternative is worse. What has not been stated is whether these changes will put the PSSF on a stable footing or simply delay the time when the fund will run out of money.

The changes are also slated to take place over a long period of time — the increase in retirement age will not take place until 2035, for example.

This makes little sense. If the situation is as severe as suggested by David Burt, the Premier and Minister of Finance, and Barclay Simmons, a former Butterfield Bank chairman and chair of the Government’s investment committee, then quicker action only makes sense.

Mr Simmons was admirably honest about the scale of the challenge. He told public servants: “We cannot invest our way out of this problem. That is a level of risk that would be inappropriate. You would not want that and we would not do it. The change has to come from how the plan is set up.

“Without reform we will go from the funded status that we’re at today to a depletion of the funds in 2045. It doesn’t happen in 2045; it starts happening right away.”

Mr Simmons is right to sound the alarm, but it is debatable whether the measures proposed are enough.

The problem for the PSSF is twofold. Unlike the vast majority of private pension funds, government employees have retained defined benefit pension funds in which they are guaranteed a pension based on their previous income and years of service.

Private pension fund employees are mainly invested in defined contribution plans, and receive a pension based on the accumulated contributions they and their employers have made, along with any investment gains they have made.

The second problem is that when funds such as the PSSF were set up, they began paying out benefits to pensioners immediately. That worked relatively well in the early years when contributions far outweighed benefits, but the reverse is now true.

There are several ways the gap can be eliminated.

One is for the Government — the taxpayer — to top up the fund. That would not solve the problem, only delay it, and it seems inherently unfair for ordinary taxpayers to rescue the pension funds of public servants when they are already paying their wages in the first instance.

Another is for government pension funds to be converted to defined contribution funds, which should have happened 25 years ago. However, there appears to be little stomach for this within government circles.

That leaves fundamental changes to the way the PSSF is run now. There are only two ways to accomplish this, and these are the measures being proposed by the Government. The question, however, is whether they are enough or too little, too late.

These are the increase in the retirement age to 70, the 2 per cent increase in contributions, and the reduction in the rate of benefit by basing pensions on the average of the last decade’s salary rather than on the last year’s salary.

All of these measures are slated to take place over a period of up to ten years rather than immediately. There may be sound political and legal reasons for that. Cutting into the expected pension of someone who is due to retire within days seems invidious and unfair.

But delaying raising the retirement age until 2035 boggles the mind. Why could it not be done by 2030, which is still five years away?

If this is an emergency that requires immediate action, and it is, leaving some of the solutions on the table for ten years — which also gives spineless politicians time to backtrack in the future citing one crisis or another — makes no sense.

Mr Burt and Mr Simmons deserve some credit for finally trying to deal with this problem, although it should also be borne in mind that the Premier has been in office for eight years now. But it remains to be seen just how tight their grip on it is. Moving faster now would lead to long-term benefits later.