Work and pensions in a world of abrupt change
Following up on our article of last week, relative to the Bermuda Government Contributory Pension Fund, we share additional feedback from readers and others.
A reader asked: “If I don't qualify for Government social insurance, I understand that my contributions will be returned to me at age 65, without interest. Does this include both my contributions and my employer's?”
Yes, it appears so — in the past. But it is not known, regarding future distributions.
Talking about pensions is two-fold. You need a stable full-time job, generally, to qualify for an available pension or two. But it was not so in the past.
For many years we have had a tendency to be far too complacent about our financial health.
Those close to or already in retirement, grew up in a highly successful, at that time, Bermuda environment. How many remember the tourists pouring out of cruise ships docked in Hamilton, and almost literally fighting for space in shops to buy anything Bermuda duty-free to take home?
Jobs were easier to come by, but few had benefits.
Didn't like your job or your boss? Quit, and the same afternoon, presto, another job that might still offer health insurance. Need additional income? Part-time jobs were plentiful.
It was a time for the most part, of uninterrupted, serene prosperity. Bermuda islanders from of all walks of life saw the financial opportunities and through sheer grit, determination, and willingness to work hard and extra hours, were able to buy or build themselves a real home.
This is not an exaggeration, I have known families who did so by holding down two or three jobs. Work at the regular job during the day, knock off, then head to second job in hotels, tourist-type businesses, entertainment venues, and necessary commerce. Second or third job finished at 2am; then it was home for a few hours of rest before repeating it all.
These families were able to save, save, save for the future. They had to.
There were almost no private pensions in those days. The Government Contributory Pension Fund (a subsistence allotment, but better than nothing) was legislated in 1970.
A few Bermuda businesses did provide a defined benefit plan, where the future benefit was absolutely contingent upon the business remaining profitable and solvent for many years. The business funding liability could encompass up to 45 years to retirement age for a young employee, with another 20 to 35 years of retirement funding.
The individual employee did not have control of his/her defined benefit plan. Your employer did, with the promise that at retirement you would receive an annuitised monthly payment.
Added all together, the number of years that a company needed to set aside funds for their employees became a massive liability burden on its balance sheet. Large, globally-operated businesses still carry this financial millstone responsibility, such as General Motors.
Very small companies could not sustain this future liability in competitive markets, either winding up, discontinuing the pension offering, or switching to a defined contribution plan — passing some or all of the contributory responsibility directly to their employees
Yes, things are very different now; yet, many still believe the old ways will return.
We are in a world of abrupt change, terribly and tragically exacerbated by the Covid-19 pandemic.
Many of these changes, particularly in the consumer marketplace, may be here to stay.
Unemployment is high across most of the world, according to the OECD first quarter Employment Situation released on July 16, and it is expected to increase dramatically in the second quarter, particularly in the US and Canada.
Types of unemployment are generally defined in three categories, in an excellent article by The Balance.com:
• Cyclical unemployment occurs during recessions. Demands for goods and services decrease dramatically. The business cycle contracts, forcing businesses to lay off workers to cut costs, that in itself creates more unemployment as everyone cuts their personal expense spending.
• Structural unemployment exists when shifts occur in the economy that create a mismatch between the skills workers have and the skills needed by employers.
• Frictional unemployment occurs when workers leave their old jobs but haven't yet found new ones. It is directly linked to structural unemployment.
In these new and emerging business trends, companies may require less physical personnel across the board.
Business that do need service persons may be operating at far slimmer margins, at least in the short term.
Businesses are adapting to technology more than ever, with remote doctor visits, operations, robots, online ordering, and so much more having enormous relevance.
Space constraints simply do not allow for a complete discourse on these radical workplace changes, but readers, you know what to do: research, read, keep on top of these changes.
The job you had before, the job you have today, may not be the job of the future. The concept of jobs is changing along with benefits. You have benefits today, but will you continue to have them?
What can you do besides worry about what may be down the road — a complete change in your lifestyle?
You need to be prepared to manage your own financial future.
Truly assess your employment skills. What are they? Can you improve? Do you need retraining? How, when, why, and what in?
Should you be learning every day? Will your job be there for you? For how long?
Where will the jobs of the future be? What will they pay, and can you take advantage of this time to plan the rest of your career?
Realise this: government cannot be the backstop for ever.
Readers, you should know that I am not the only one, by far, to warn and encourage you to think about your working future. And after 20 years of writing information and encouraging articles to help you become financially successful, you know that I have every single Bermuda islanders' interests at heart.
The Bermuda Islander Fundamental Financial Planning Primers series one: The Dawn of New Beginnings — Your Financial Review to Dramatically Improve Your Lifestyle, by Moneywise, is just a few weeks away from publication.
It is my gift to our island community. It will be available for free in a PDF download version or viewed online as a digital flip-book.
• 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: email@example.com