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Billions of debt and unfunded liabilities 'sitting on public’s shoulders'

Budget Breakfast: Arthur Wightman, PwC Bermuda leader, left; Curtis Dickinson, Minister of Finance; Suzanne Williams-Charles, director of policy and regulation, corporate secretary and data privacy officer at Abir; and Nathan Kowalski, economist and Chamber of Commerce vice-president, spoke on the panel of the Bermuda Chamber of Commerce Budget Breakfast, which was an online event this year due to Covid-19 restrictions (Photograph by Scott Neil)

Bermuda’s financial liabilities stretch far beyond its net debt of $3 billion. It is estimated a further $1.5 billion to $1.7 billion of unfunded liabilities are stored up in the Public Sector Superannuation Fund, the Ministers and Members Legislature Pension Fund and the Government Employees Health Insurance Fund.

In addition, there are unfounded liabilities in Bermuda’s Contributory Pension Fund, with an actuarial best estimate projecting the fund will be exhausted 26 years from now.

Arthur Wightman, PwC Bermuda leader, spoke about these as he moderated a panel at the Chamber of Commerce Budget Breakfast this morning. Referring to the unfounded liabilities in the funds, together with the net debt, and various government guarantees totalling about $600 million, said: “When you add all of these things up you get a sense for what is sitting on the public’s shoulders.”

He added: “During the next fifty years the number of people over a pensionable age of 65 is expected to increase by 68 per cent. The public sector pension funds have a government guarantee so when they run out the government has to step in. The contributory pension fund does not. Like a lot of funds, the way that works is that today’s workers pay for today’s retirees. But if that runs out, that’s it. Either way, this compounds the strain on our children and their children.”

Curtis Dickinson, the Minister of Finance, in his Budget Statement, referred to “significant actuarial funding gaps” in the funds. He said steps are under way to find solutions.

Speaking at the Budget Breakfast, the Minister said advisers were looking at the underfunding, and there has been outreach to key stakeholders. He said the challenges with the funds are solvable, but solutions would not happen overnight.

Mr Dickinson told The Royal Gazette: “We’ve hired a firm to come in and assess the current state of the fund. We also have actuaries who do work every year, who look at the participants in the plan and what their expected payouts will be should they work to their retirement age, and then some actuarial work is done around how long they will live.

“The assessment they have made is that there is a $1.5 billion to $1.7 billion gap with respect to future liabilities, verses the value currently in the funds. We have to figure out ways to close the gap. It’s not going to happen immediately.”

The work started around August, and is ongoing. It is now in the second of three phases. While nothing has been decided, a range of options around benefits, contributions, retirement age and investment strategy have been identified. Outlining these, Mr Dickinson said: “You could extend the retirement age, adding additional years of life to the fund."

“You could change the calculation of the benefit; in the current programme it is your final salary becomes the determinant for what your future benefit will be. There are plans that have things as extreme as your final salary number is averaged on your entire working life at the organisation, there are others that say your last three years or last five years. We are looking at that.”

The performance of investments is also being examined, to decide if strategies, including asset allocations, should be changed.

The fourth option is a change to contributions. Mr Dickinson said: “So, we could have people make larger contributions and that way you have more investable assets and therefore you can generate more returns.”

He added: “We are looking at all of those and trying to work out which combination leads to the best results. But this will need to be in consultation with key stakeholders. There are participants represented by the unions; the unions have been co-opted into the process.

“The work is ongoing, it’s very important and it is work that requires collaboration.“

The Budget Breakfast panel also featured Suzanne Williams-Charles, director of policy and regulation, corporate secretary and data privacy officer at the Association of Bermuda Insurers and Reinsurers, and Nathan Kowalski, economist and Chamber of Commerce vice-president.

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Published March 01, 2021 at 4:31 pm (Updated March 02, 2021 at 1:29 pm)

Billions of debt and unfunded liabilities 'sitting on public’s shoulders'

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