Experts: we face hard choices on pensions
Cutting back on pension payments or asking workers to contribute more are among the “hard choices” that must be made to ensure funds are available for seniors in the future.
Political commentators Denis Pitcher and Robert Stewart issued warnings over the state of Bermuda's public retirement pot, which has been forecast to run out in 2049 if nothing is done to tackle its stretched reserves.
Their comments came as David Burt, the Premier, told Bernews pension reform will happen in the next parliamentary session and that the retirement age will need to be raised.
Heather Thomas, the Auditor-General, said this month management of the Contributory Pension Fund must be improved and its annual accounts — last done in 2012 — should be updated immediately.
She also urged the Government to act on recommendations from the Sage Commission report into spending and efficiency, which was delivered in 2013, and an actuarial review provided by Canadian company Morneau Shepell based on the island's finances as at August 2014.
Contributions from the present workforce allow payments from the CPF for old-age pensions and disability and death benefits for the general population, but there is no provision for any shortfall to be covered by the country's normal Budget.
Mr Pitcher, an independent political commentator, explained: “The 2014 review of the Contributory Pension Fund predicted that in a best-case scenario, the money would run out in 2049.
“As a stark example, this suggests that those born in 1984 who would turn 65 in 2049 would effectively spend their entire working lives contributing to a pension system from which they would not draw a penny.
“This is wholly concerning in that as our population ages and our elderly live longer, it places significant burdens on our younger working population to sustain a scheme that will be of no benefit to them.”
Mr Pitcher stressed the fund is made up of the social insurance fees deducted from salaries, and not the private pension scheme, which is “dependent on the management arrangements and directions you make with your pension provider”.
He said changes have been made to raise contributions but payouts have also seen increases.
Mr Pitcher continued: “In order to make it more sustainable in the long run, we will need to make hard choices of cutting back on pension payments, increasing the amount workers need to contribute, increasing the retirement age and finally, increasing our resident population. None of which are very palatable for many Bermudians.
“Whether any of these changes will make the pension system ultimately sustainable for future generations is uncertain.
“The sad reality is that Bermuda's population is ageing and, as a result of our elders living far longer than expected when this pension scheme was originally devised, it is very likely that eventually it will run out of money without drastic measures taking place.”
Mr Stewart, a former lecturer in economics, said the “politicians would like us to believe” that money paid into the pension fund is held in account, but that is not the case. He continued: “Your contributions go into the fund but are immediately paid out to people who have retired.”
Mr Stewart said: “Now, as we have an ageing population, more money is going out than is going in so we are short of money in the first place. Nothing can be done short of putting a huge charge on working people in order to make the fund viable.”
Mr Burt said last night that the Government has considered options to address the issue, including those recommended in 2014.
He told The Royal Gazette: “The next 2017 Actuarial Report for the fund will be completed shortly, and following this review the ministry will propose changes to the Bermuda's Social Insurance plan to ensure its sustainability in the long term.”
The Premier added: “As at 30 September, 2017, the fund had total assets of over $1.831 billion, representing approximately 11.7 times the annual value of benefits paid in the 2016/17 fiscal year.
“This is a relatively high level of funding, and when compared to 14 other regional social security schemes in a 2013 study, Bermuda's ratio is better than nine of these countries.
“By comparison, the ratio for the Canada Pension Plan in 2013 was 4.98 years.”
Jeanne Atherden, One Bermuda Alliance leader, highlighted the importance of education to enable people to make provisions for retirement.
The Shadow Minister of Finance added: “The payments that are going out are greater than the contributions going in because there are smaller numbers of people in the workforce, so the answer to this is more jobs.”
Ms Atherden said that while it is important to ensure Bermudians have job opportunities, the Government must also have an immigration policy that will encourage more people to come and work on the island.