Thousands of Bermuda residents have dipped into their pension pots, taking out an average of $7,000 to $9,000 to help them through the economic downturn caused by the Covid-19 pandemic.

And a local pension company estimates that a quarter of its members and staff have taken advantage of the one-year pension holiday allowed by the Pension Commission, where they take a break from paying into their fund.

The relief measures have helped people cope with the impact of the pandemic on their finances, but it could be creating future problems with underfunded pensions, and it is said to be exacerbating a problem that existed before Covid.

The figures were revealed during a discussion involving representatives of BF&M Ltd, Argus Group and CG Insurance at the Bermuda Insurance Institute’s Virtual Fall Conference 2020.

Jason Cook, vice-president, financial planning and individual lines, at BF&M, said: “Roughly 25 per cent of our members or employees have taken advantage of the one-time Covid-19 pension withdrawal that was put forward by the Pension Commission for emergency relief from the Covid side of things.”

Mr Cook added that for a company the one-year pension contributions holiday being allowed this year helped business finances as the employer is not paying the pension “match”, while for an employee it is “essentially a 5 per cent pay rise for those who have chosen to take that holiday”.

He acknowledged that extraordinary times required out-of-the-box solutions to jump start the economy, but said the long-term impact on a person’s retirement nest egg was big in terms of underfunding.

“In some cases you are losing the employer match, you are also potentially losing the power of compounding over time. You are also borrowing from your future self to pay for your present self,” he said, noting that population projections for the island suggest that one in four residents will be aged 65 or older in six years’ time.

Damian Pitcher, assistant general manager, CG Insurance, said: “There is a clear difference in how people have been impacted by Covid-19. You have the retail sector, restaurateurs and also the hospitality industry where it had a real impact on their income.”

Peter Lozier, chief executive, Americas, at Argus Group said there had been very little take up of the pension holiday on the international business side compared to sectors impacted by the economic downturn, such as retail and hospitality.

He said around 4,000 people out of a membership of about 20,000 had applied to take funds out, but not all had opted for the $12,000 maximum single-time emergency situation withdrawal; the average amount withdrawn was about $9,000.

Mr Lozier warned: “It is exacerbating a problem that was already there. We already had a retirement readiness problem in Bermuda, where the average size of an individual pension was just over $100,000, whereas the need in order to retire is anywhere between eight and 12 times that amount.”

Pension relief measures were introduced by the Government, and are administered by the Pension Commission.

Peter Sousa, chief executive of the Pension Commission, told The Royal Gazette that data collected showed the average amount withdrawn from pension funds is about $7,000. At the middle of this month, the number of withdrawal applications that had been approved was 14,545, totalling $102 million in funds.

The Pension Commission is also collating data on how many people have taken “pension holidays”, and that figure is below 25 per cent, with some data still to be received.

Don Burgess, who moderated the panel, asked if companies were making people redundant or offshoring jobs.

Mr Lozier said: “You can look at the headlines in the Gazette to see there are challenges in this regard. Covid-19 has exacerbated an underlying problem that was already there. Is Bermuda competing in the global economy? Absolutely. Are we seeing similar trends in other jurisdiction? Absolutely.”

He added: “The attrition within companies is the real number we are trying to get an understanding of. We've seen attrition starting to happen well before Covid-19.”

The Bermuda Insurance Institute Virtual Fall Market Conference 2020 continues today.

This article has been updated with information from The Pension Commission