The long-term impact of the public pension fund/schemes remains an open question, yet the standing of their key stakeholders, public-sector employees, remains a fait accompli. By quantifying the economic and social footprint of the Public Service Superannuation Fund (PSSF) Amendment Act 2025, the parliamentary speech by the Minister of Finance brings to bear different perspectives that need to be addressed. The core problem of the PSSF, which pays pensions for the public servants, is that it is severely underfunded. With only a 37 per cent funding ratio and a $1 billion deficit, it was projected to be depleted by 2045, threatening the retirement security of current and future workers.

The frames of reforms

Framing from a global necessity, the Finance Minister cited examples from the UK, Canada, the US and others and by emphasising extensive consultation with only actuaries, offsetting contribution increases with a negotiated salary uplift to protect the take-home pay, and promising that these changes will enable cost-of-living increases for the current retirees in the future. The Government is introducing a proposed solution of a package of six key reforms designed to make the fund sustainable.

1 Increase earliest unreduced pension age: From 60 to 65 for most and from 55 to 60 for uniformed services (phased in 2027-2035).

2 Increase employee contribution rates: From 8 per cent to 10 per cent for most and from 9.5 per cent to 11.5 per cent for uniformed services.

3 Change pension calculation formula: from final year's salary to the average of the final ten years' salary.

4 Increased mandatory retirement age: from 65 to 68 to 70 for most and from 55 to 60 for uniformed services.

5 Adjust lump sum conversion factor: to be actuarially assessed instead of a fixed, costly rate.

6 Strengthened governance: giving the PSS Board a more formal role in oversight.

At the closing of the speech on the PSSF, the Finance Minister stated: “They are fair, they are responsible and they will ensure that Bermuda’s public officers, today and tomorrow, can depend on the pensions they have worked so hard to earn”.

Click here for the Government’s response

Long-term impacts of reforms

It is imperative to mention that the long-term impact on public sector workers is profound and multifaceted with both significant benefits and crucial challenges. Among the positive impacts are guaranteed pension payouts, which indicates that the pension fund will likely exist when workers retire. The reforms aim for the fund to be fully funded by 2026, ensuring that the pension scheme is kept for both current and future generations.

Secondly, the PSSF aims to increase retirement security, showing that workers can now retire with great confidence knowing the system is stable, reducing the risks of retirement crisis. Furthermore, the PSSF has the potential for future increases. By sustaining the fund, it creates financial capacity to grant cost-of living adjustments (Colas), which have been frozen some time.

However, a retrospective of the Finance Minister’s speech indicates that there are extremely negative long-term impacts of the PSSF to employees and the economy. In essence, the reforms transfer risk from the collective (total collapse of the fund) to the individual (a longer career and slightly less generous benefits). The Government argument is that this is a necessary and responsible trade-off to prevent a worse outcome. Workers within five to ten years years of their planned retirement are the most negatively affected by these changes because they have the least time to adjust their plans. The concept of “grandfathering” - protecting - those close to retirement appears limited in this reform package.

Hence, the shattered retirement plans, for instance, someone who is 58 years old in 2024 and planned to retire at 60 with full pension in 2026 now must work until they are 65 years old (likely in 2031) to receive full, unreduced pension. (Editor’s note: the Government states that this individual would not be affected as the reforms do not start until 2027 and will be phased in).

This drastic, life-altering change will force them to take out their pension before the plan kicks in. The impact is that it will cost the Government more money and financial burden as many people will retire early to avoid this reform introduction.

Moreover, “the double whammy” of the pension formula creates a big problem. A worker at the peak of their career (55-60 years) is likely earning their highest salary. Under the old system, their pension would be calculated at this peak. Under the new system, it will be calculated on the average for the last ten years. For someone with two years left, this means their pensionable salary will be the average with years of lower, pre-peak earning, diluting their pension benefits at the finish line. This direct and immediate cut to their expected retirement income will force them to take out early packages before the new system starts to function causing the Government huge financial payout further draining the already underfunded scheme. (Editor’s note: the Government again disputes this, saying that the change will be phased in with the final ten-year calculation only taking effect in 2035).

Again, the negative impact extends to health and occupational risks especially for uniformed services. For instance, for police officers or firefighters in their forties who are counting on retiring at age 55, being forced to work until 60 is not just an inconvenience. These services are physically demanding jobs and force older workers in these roles to continue exposing them to higher risks of injury, burnout, and heath complications. The mental and physical toll can be extreme. This can lead to loss of trust and morale leading to increasing resentment and a sense of betrayal that may push the experienced talent to leave, despite the financial penalty.

While the reforms aim to protect the long-term economy, they introduce severe short to medium-term economic risks. The reform will lead to aggravated brain drain and loss of expertise. The most senior and experienced senior public servants (those nearing retirement) who may be the most marketable, faced with having to work for five more years under what they perceived as a broken promise, a significant number may choose to retire early and take the reduced pension, even with less spending power and become a net drain on other social services. They will also leave the public sector entirely for private sectors job opportunities either at home or overseas, taking their invaluable institutional knowledge with them. This will eventually create crisis in key sectors such as education, healthcare, and policing.

Furthermore, among the economic impact is the fiscal pressure on other social services. Workers who cannot work until the new retirement age due to health reasons are forced to retire early with a reduced pension may fall just below the poverty line. This could increase the burden on the financial assistance and social support system, potentially offsetting some of the fiscal savings from the pension fund.

Lastly, it will damage the public sector morale and productivity. The demoralisation of being forced to work longer years for less-generous benefits will likely lead to less engaged, less productive, and a more resentful public workforce. This quiet quitting phenomenon can reduce the quality of public servants, which in turn may make the country less attractive for business and investment.

Conclusion

The Government may be making a calculated gamble sacrificing the retirement plans and financial wellbeing of one generation of workers to prevent a total systematic collapse that will devastate all future generations. The economic risks primarily surround the implementation of the reforms. If these changes lead to a mass exodus of skilled workers and a collapse in the public sector morale, the short-term economic and social damage could be severe, even if the long-term outcomes predicted by the actuarial consultation result in an improved pension fund. The success of these reforms hinges not just on the actuarial members but on managing the profound human and economic disruption they may cause.

∙ Dr David Annan is a lecturer in economics at Bermuda College