Impact of suspending social insurance
A reader has questions regarding the government initiative to allow employees and employers to elect to suspend social insurance contributions, which go into the Contributory Pension Fund, until June 30, 2021.
“This is quite confusing,” the readers states. “Suspension of current contributions at $35.92 per week would increase my net compensation amount by approximately $1,867.84 a year; while, my employer would save the same amount as well. I don't feel that I know enough to make the right decision.”
Questions and answers
Am I giving up just the weekly amount without any increase, or is the contributory fund invested in some way?
The CPF is invested in capital markets, thereby providing an opportunity for the group contributions to increase in value; however, the social insurance office calculations to determine the amount of individual retirement monthly payment (see below) do not appear to include any reference to investment appreciation.
According to the most recent summary of the 2017 actuarial report, link below, as presented to the Bermuda House of Assembly by Curtis Dickinson, the finance minister, on March 13, 2020, the CPF earned a nominal rate of return net of investment expenses of 3.5 per cent per annum and a real rate of 1.8 per cent per annum over the three years ending August 1, 2017.
And if so, how is it managed and by whom?
Moneywise was unable to obtain information on the fund's investment policy, asset allocations or the name of the portfolio management firm(s) that manage these funds, at press time.
Are there publicly available audited financial statements for this fund?
According to the Office of the Auditor-General's website, listed under the Consolidated Fund of the Bermuda Government Public Funds section, the last set of audited financial statements for the Contributory Pension Fund was conducted for the 2012 year.
Can the fund be used to pay disability benefits?
Yes, disability benefits are provided by the CPF and social insurance office according to their guidelines. The CPF is also used to pay a widow's allowance assuming the deceased husband contributed to the fund. See the link to government social insurance benefits website below.
However, there may be a caveat regarding disability; the Social Insurance website statement is confusing in that said benefits are only available to Bermudians. It states: “All Bermudians deserve to be looked after in retirement. The Department of Social Insurance makes sure everyone can enter retirement with financial stability by managing Bermuda's pension plan.” Further research is needed.
Will my pension at age 65, if I am eligible to obtain the pension amount, be approximately my contributions (plus my employer's contributions) adjusted for inflation?
Minimum requirement: age 65 with at least 484 weeks of contributions, including at least 50 weeks of contributions for each year of coverage. Retirement is not necessary to apply for the pension.
Moneywise was unable to obtain the formula used by the Social Insurance office to calculate a qualified soon-to-be retiree's pension, after the minimum number of weeks and years is applied, and, if indeed, inflation adjustments are applied.
The Act explanation, First Schedule, page 27, lists current rates of contributions relative to the weekly payment of $35.92 for employer and employee.
The formula, according to direct reference from the Contributory Pensions Act 1970 (Consolidated) Second Schedule Rates Of Contributory Old Age Pensions And Relevant Contribution Conditions on page 28 is,
“1, Subject to the following provisions of this Schedule, the contribution conditions for receipt of a contributory old age pension at the rate of $247.89 a week are as follows:—
“(1) The first contribution condition is that not less than 484 contributions have been paid by, or in respect of or credited to, the claimant in respect of the period between his entry into insurance and pension age; and
“(2) The second contribution condition is that the yearly average of the contributions paid by, or in respect of or credited to him (ascertained at pension age), is not less than 50.
“2, Subject to paragraph 3, the weekly rate of pension shall be increased by $1.46 for every 26 contributions paid by, or in respect of the claimant and in excess of the minimum number specified in the first contribution condition, in respect of the period between his entry into insurance and pension age.”
If the first two conditions are not satisfied, the pension distribution is adjusted proportionately downward.
The question of an inflation adjustment against an index is not referenced, although increasing $1.46 a week for longer work careers with full social insurance contributions is indicated on section 2.
What happens if a, I am a work-permit holder or expatriate working in Bermuda and b, I have not met the minimum requirement for a pension?
A contributor, particularly an expatriate/work-permit holder, who does not qualify for a pension because the individual has not worked and paid in the required number of years, will be refunded the total contributions — without any interest.
Readers will find these answers rather unsatisfactory and for that I apologise.
A big buyer beware, especially for expats and work-permit holders. Keep all pay stubs with your social insurance ID. Track your deductions and employer contributions monthly for several very important reasons:
1, It is your responsibility to report immediately if any of your pension contributions are missing;
2, Bermuda Government will not backstop any missing contributions, unlike other country governments who regard employee benefits pensions as sacred trusts; and
3, Are you really going to remember 20 years down the road how much you are owed in the return of your social insurance benefits, without interest. And can you prove it?
It all adds up: update on national pensions, February 8, 2020, Martha Myron, http://www.royalgazette.com/martha-myron/article/20200208/it-all-adds-up-update-on-national-pensions
Government of Bermuda, Social Insurance Office, https://www.gov.bm/department/social-insurance
Contributory Pensions Act 1970 (consolidated) at www.bermudalaws.bm
Actuarial Review of the Bermuda Government Contributory Pension Fund 2017, https://www.gov.bm/articles/actuarial-review-contributory-pension-fund-2017-cpf-pension-increase
Note that this report contains only the actuarial review summary announcement by the Minister of Finance of the review. The original actuarial report has not been posted on the Social Insurance website.
• Martha Harris Myron CPA JSM: Masters of Law — international tax and financial services, dual Bermudian/US citizen. All proceeds from these columns are donated to The Bermuda Salvation Army. E-mail: firstname.lastname@example.org