House approves letting government employees tapping into their pensions in time of need
Government employees will be able to tap into their pensions early if they encounter financial hardships such as rent arrears or medical expenses from April 1 onwards.
Premier and Finance Minister Paula Cox introduced the changes to the Public Service Superannuation Act in the House of Assembly last night, and they were approved by MPs.
The move, first announced in the Throne Speech in 2011, follows similar legislation relating to the National Pension Scheme for private sector workers passed over the course of 2010 and 2011.
In both cases, workers will now be able to access their pension savings at times of extreme hardship in order to pay for medical expenses, educational expenses, rent arrears and mortgage arrears.
Ms Cox said since the legislation relating to private sector workers was first passed in August 2010, and up to December 31 2011, there were 342 applications. Of those, 249 were approved and $2.1 million was paid out.
The majority of the successful applications, 108, were to fund educational expenses.
Of the rest, 77 were made because the applicant faced the imminent threat of eviction from their rented home, 39 faced the imminent threat of losing their own home and 25 needed to pay for medical expenses.
With the new legislation, public sector workers experiencing financial hardship can access up to 25 percent of their pension contributions plus interest which is calculated at four percent per annum.
Most public sector workers contribute eight percent of their earnings to their pensions.
Applications for withdrawals in times of financial hardship can be made by current contributors or former contributors to the scheme, but those who are already drawing their pension are barred from applying.
Ms Cox said it will be explained to the applicant that they will experience a reduction in their pension benefits further down the line if they withdraw money early.
However, exact financial projections will not be provided. There will be a $100 fee to apply to withdraw funds, and all applications will be vetted by the Pension Commission.
No more than 25 percent of the account balance can be withdrawn at any one time, only one application can be made every five years and a person is only allowed up to two applications in their lifetime.
Ms Cox said: “This proposal is sensible and strikes the right balance.”
She said it allows people access to their pension funds “under extreme hardship conditions” but still provides protection in ensuring that they receive a decent pension when retiring.
The One Bermuda Alliance and United Bermuda Party did not oppose the legislation.
However, Shadow Finance Minister Bob Richards said he would have liked it to be temporary rather than permanent.
Ms Cox replied that it could always be repealed later when the current economic hardships have eased.
Mr Richards added: “I’m still not quite comfortable with this. I understand the purpose, I understand it and am sensitive to it.
“But (I) heard just the other day from Claudette Fleming (of Age Concern) about the concerns for seniors; they are concerned about the money being there for their pension and (concerned about) people taking money out of their pension for immediate needs at the expense of their needs when they are retired.”
Charles Swan, who was elected as a United Bermuda Party MP said his party supported the legislation.
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