Sweeping changes to Bermuda’s pensions regime, including the right to cash in a chunk of a job pension on retirement, are being watched closely by the insurance industry.
The amendments, if voted into law, could have “significant repercussions for individuals as well as for companies administering pensions”, according to John Wight, the chief executive of insurer BF&M. The legislation, tabled last month in the House of Assembly, will allow employees to take out a quarter of their private pensions as a lump sum on retirement.
It will also require non-Bermudian workers to pay into their occupational pensions, along with self-employed workers. Mr Wight said yesterday that the insurance firm was “generally supportive of steps being taken that align Bermuda further with best practices adopted by other countries, such as enacting access to 25 per cent of pension balances at retirement”.
The company also gave its backing for stronger governance for pension plans, including “vetting and approving pension trustees to ensure that employees receive full pension benefits to which they are entitled”, Mr Wight said.
He added: “When there is more certainty around what is passed into law and the associated timelines, we will, of course, be reaching out to inform our clients.”
Nick Kempe, the shadow finance minister, saw no pitfalls in workers cashing in a portion of their pension on retirement. “I have no problem with that,” Mr Kempe said. “People can already take it out for hardship. I see no issues.”
But he said the National Pension Scheme (Occupational Pensions) Amendment Act 2019 “adds another layer to the cost of doing business”.
Mr Kempe was sceptical that requiring expatriate workers to pay into occupational pensions would level the playing field. I don’t think it’s a consequential amount of money when you factor in costs such as work permits and repatriation,” he said.
“I would be curious to see any data to support the belief that pension contributions make businesses hire guest workers.”
He added: “Also, it means that money, when taken back, will go to a retirement overseas. I don’t think that’s a good idea at all.”
The One Bermuda Alliance senator said the 35 pages of legislation came with “a raft of additional fees which will, of course, get passed on”.
“It seems like it’s justifying beefing up the Pensions Commission. It just feels like more cost and more red tape.
“Businesses are being asked to bow to an awful lot of additional expenses. It’s not having a beneficial effect on the local business community.”
Robert Stewart, an economist, called the legislation “a band-aid on a broken leg”.
“There’s a major problem with the Government’s contributory pension plan, which everyone buys into,” Mr Stewart said.
“It’s bankrupt; the last time I looked it was 45 per cent funded, which means it has less than half of what it should.”
Mr Stewart added: “Another big problem is that there is no mechanism for enforcement of the occupational pension.
“The funds are run by insurance companies like Argus and BF&M, that’s the one that you can take out your lump sum. But many people and many employers do not pay into it, and there is no mechanism whereby the Government can check.”
Mr Stewart also supported enabling the withdrawal of a quarter of a pension upon retirement.
“That means if you have a pension of $500,000, you can take $125,000 out as a lump sum to pay off your mortgage or any debts you may have. It’s your money; you should be able to do that.
“You’re left with $375,000 and that money is invested on your behalf by insurance companies. It rises and falls depending on how it is invested.”
He said: “The problem few people pick up on is that the insurance company takes a fee of about 1 per cent of your assets for running your retirement account. That fee is really very high by international standards.”
Mr Stewart called the legislation “a step in the right direction”, but said the island needed a more realistic plan to contend with its high costs.
He added: “The money is there, but it is not adequate. Most people have not made adequate provisions for their retirement.
“At age 65 or retirement, ideally the situation should be that the employee should have sufficient funds to provide them with at least 50 per cent of their working income.
“The reality is that insufficient funds are put in there in the first place, so that will never be realised for the majority of people. The money is not there, which is why there is more realistic legislation needed.”