Business community not convinced by idea of suspending pension payments
The majority of the private sector is unlikely to take advantage of a plan to let companies and their employees suspend pension contributions for a year, according to the Bermuda Employers’ Council.
Council president Keith Jensen said he did not believe the proposed amendment to the law outlined by Premier Paula Cox in her Budget statement yesterday would prove popular.
Bermuda Chamber of Commerce, meanwhile, criticised Ms Cox’s proposal as “concerning” and said the long-term ramifications could “only be damaging”.
Mr Jensen told
The Royal Gazette: “I think there may be one or two industries that will give serious thought to it that are most hard-pressed. The obvious one is the hotels.
“I think most businesses are not likely to take up that option and a number of businesses would not see that there would be enough of a short-term benefit for a year, because they would have to pay in year two.
“A lot of businesses are not going to see going through the procedures to get the exemption as worth it. I also think that a lot of businesses and employees won’t see this as a good thing for the future of their pensions and investments.”
Economist Peter Everson, speaking on behalf of the Chamber, said: “While there may be those in the short-term who see this as an opportunity to improve cash flow, the long-term ramifications can only be damaging and employees under the age of forty should be very concerned.”
Charles Dunstan, president of the Construction Association of Bermuda, said: “While the construction industry appreciates any attempts to provide short-term stimulus to consumer spending, some serious discussion should take place with members of our community about putting short-term appeasement ahead of long-term sustainability.”
Finance Minister Ms Cox said the aim of the scheme was to reduce pressure on family budgets.
“Government proposes to amend the Occupational Pension Act to allow for a voluntary suspension of employee and employer contributions for a period of one year beginning in 2012,” she said in her Budget statement.
“The contribution rate of ten percent is shared equally between employers and employees. If the suspension of contributions is taken up across the private sector, it will provide both relief and stimulus to families and businesses.
“The stimulus to the economy will be generated if some of the saving is converted to consumer spending in the local economy and business investment in infrastructure and improvements.”
She later told a press conference: “It is important to sustain jobs as our economy heads towards recovery. There was a time not so long ago when companies did not have to provide pensions to their employees.
“Now they do. However, we must recognise that employers are under pressure and, as our economy heads to recovery, we must reduce pressures on companies that will cause them to shed jobs.”
Ms Cox added: “This is a temporary measure that will provide temporary relief to employers and provide additional income to employees. Additional income to employees provides stimulus for our economy.
“Stimulus leads to growth and creates jobs and that is what our economy needs. This is voluntary and employers and employees can still contribute to their funds if they wish.”
Ms Cox did not explain if both employer and employee would need to agree to a suspension before it came into force.
Asked to clarify, Acting Financial Secretary Anthony Manders said last night: “The logistics of the voluntary suspension of pension contributions will be determined with the input of the Pension Commission and plan administrators.”
Yesterday’s statement also revealed Government will suspend its own contributions to the pension fund for public servants, to the tune of $31 million, and borrow from the Sinking Fund for debt servicing.
Ms Cox said this would “provide additional fiscal space in 2012/13” for Government, with the money redirected to “policy priorities”.
But Shadow Finance Minister Bob Richards said the Budget “raids worker pensions and debt-clearance funds to cover shortfalls”.
Mr Everson said borrowing from the Public Service Superannuation Fund (PSSF) and the Sinking Fund would do “nothing to change the reality that Government is spending far more than taxpayers can afford to pay”.
He said: “As of March 1, 2011, the Government’s revenue deficit stood at $405 million and included the $105 million shortfall in the Government pension and health plan.
“Even with borrowing from the Sinking Fund and pension plan, the Government will still be short $172 million in 2013, with no viable means of repayment.
“Added to which there will still be an additional $115 million shortfall in the Sinking Fund and pension plan.”
Ms Cox said in her statement that Government would commission an actuarial review of the PSSF during 2012/13 to ensure its future sustainability.
“The suspended matching contribution for the upcoming year will be paid into the fund in the future,” she added.
Mr Manders later told this newspaper the suspension of the public pension plan contribution was a “one-off strategy”.
He said the law governing the plan required that “if at any time the PSSF is insufficient to meet the payments chargeable against it, the deficiency shall be made up out of the Consolidated Fund”.
He added: “Therefore the Government is responsible for any shortfalls and the suspended contribution will have to be made up.”
He said Government wrote off $35 million due from the fund in 2001, followed by $52 million in 2006.
“This totals $87 million in special contributions that the Government has made to the PSSF. These special contributions were due to a cash deficit i.e. the amount of contributions collected was about $87 million less than the expenses of the fund.
“Based on actuarial advice, PSSF contribution rates were increased from five percent to eight percent and 9.5 percent for regular members and uniformed officers, respectively.
“This was part of a funding strategy to place the PSSF on a more stable financial footing. The increase in contributions has resulted in a significant improvement in the cash position of the PSSF.”
Mr Manders said Government’s policy had been to reduce the “inherited unfunded liability” of the plan through a series of special contributions and a “sound investment strategy that best meets the PSSF’s financial objectives”.
“Going forward we will continue this policy in a manner which is responsible, transparent and fair to both taxpayers of Bermuda and members of the Fund.”
Are you planning to suspend your pension contributions? E-mail jdeacon[AT]royalgazette.bm