Vexed Bermoothes

Speaking of pensions, it does not give great confidence that the Bermuda Pension Commission – a quango which has the authority to oversee the different pension plans in Bermuda – has itself not published a public annual report as required by section 64 of the National Pension Scheme Act since 2007 (and this was finally tabled in the House in 2011)!  And lord help you if you want to find out who actually sits on the Pension Commission.

WTF!  This does not distill great confidence.  And why the heck doesn’t Bermuda’s media follow up on stuff like this?

The annual reports are intended to show how the commission is fulfilling its duties detailed in section 56 of Act.

• To administer the Act and the regulations .
• To consider and determine applications for the registration of pension plans.
• To promote and ensure compliance, by pension plans, with the provisions of the Act and the regulations .
• To monitor the administration, and funding, of pension plans and to enforce the provisions of the Act and the regulations in respect of such administration and funding.
• To verify the payment of benefits under pension plans.
• To promote public education on pension plans and their benefits.
• To advise the Minister of Finance on any matter relating to pensions, including the development of laws relating to pension plans.
• To provide such information relating to its functions as the Minister of Finance may require.
• To investigate complaints relating to a pension plan and a pension fund.
• To perform any other functions provided for in or under the Act.

This is an important area – and involves massive sums of Bermudians’ retirement money.  Back in 2007 they oversaw plans that covered 1,230 employers and 19,449 employees worth over $1.4 billion!  Who knows where that stands now, and we have not seen much legislative or regulatory activity other than the 2010 amendment allowing ill-advised raids on pension assets.

We deserve better transparency, and a better roadmap to ensure that Bermudians are getting the best pension services.  What’s up at the Pension Commission?

The Minister of Finance has broached what will undoubtedly be a prominent and painful subject in the coming months: the reform of Government pensions.  (See my post on this from 201o).

Some background:  Government has defined benefit pension plans for the civil service and for members of Parliament. This means that participants receive a fixed pension that is driven by their final salary rather than how much they actually contributed to the plan.

Most companies and many governments have long ago moved away from these traditional pensions, replacing them with defined contribution pensions, where participants make deposits in an account which builds until they retire, whereupon it starts paying out based on how much is invested in the participant’s account.

Bermuda’s defined benefit pensions are woefully underfunded – this means that the shortfall between what’s in the fund and what is paid out must be “topped up” out of the Government budget each year.  Bermuda’s pension problem has been compounded by the significant growth in the civil service in recent years, and the fact that civil service salaries (which dictate the pension payout) have grown faster than the rate of increase in pension contributions.  Moreover, investment income for the pension funds has not grown as fast as we’d all like.  And as the civil service inevitably shrinks to fit the “new Bermuda” there will be fewer people paying into the plan, supporting a group of retirees who are living longer!

Government just doesn’t have the flexibility to keep propping up the pension as a big chunk of the budget is already going to pay down debt.  This means that a significant – and growing – proportion of our taxes goes towards debt and pensions rather that actual Government services.  And there isn’t that much wiggle room given that more than 50% of the budget is already spent on payroll!

Would I like to have a defined benefit pension?  I sure would – let someone else hold the risk!  But I know it ain’t gonna happen in the private sector.  And I also know it is no longer responsible nor sustainable in the public sector.

I also understand why a change will worry recipients under the current pension – after all it’s their financial security.  It will be a painful transition to settle, but we Bermudians have no choice but to deal with it, no matter whether you are a civil servant or a taxpayer.  The status quo will leave both of us broke.  Left unreformed, sooner rather than later that pension’s gonna run dry.

The defined contribution pension sector in Bermuda will need some tweaks.  The basic meat is good, but very little has been done in this area since the schemes were set up a decade ago. I’d like to see more financial education and investment options, better reporting to pension holders, and more transparency and restraint on the fee “loads” charged by the administrators.

We all know that Detroit is the basket case of American cities.

But did you know that the Bermuda Government’s projected deficit this year is actually larger than Detroit’s?

The OBA budget statement last week was met with horror and relief.  Horror because Bermuda’s awful financial state is finally being made clear, and relief because we finally have a Government that has both the skills and resolve to deal with the mess.

Admitting that the PLP screwed the pooch is the first step to recovery.

In its Throne Speech, the OBA laid out a concrete list of legislative actions for the year.  Wow, we haven’t seen that in a while!  Rather than the list of half baked fantasies we’ve received in recent years, the Throne Speech contained a lineup of specific laws that Government will address in this legislative session.  So far, so good.

The PLP, on the other hand, is still struggling to find its legs, trying to restoke the fires of resentment and class fear that have always been central to its idealogy.  Fixating on the term limits issue is a strange choice.  International business is the cornerstone of our economy these days.  When you throw out their middle management, they take with them their household budgets, their support teams … and ultimately their business.  The clues are everywhere … from business closures to the hard economic data.  Frankly the policy was all about optics anyway – waivers were being granted with great frequency … but many companies noted the negative tone and simply started to move jobs out.  The OBA has done the right thing by removing this ill-advised and broken policy as a barrier.

Government’s National Economic Report 2013, also released last week, has received insufficient attention and analysis in the media.  It is full of informative data can help people grasp that we are not just dealing with a recession, we are dealing with an economy that is out of alignment.  Our government costs more than $300 million a year to run than we collect in taxes.  That’s startling for a community that is, in effect, a small village.  Out of all the job categories in Bermuda, the only one that added jobs last year was Government!

Want some evidence of the harm of term limits?  Look at the numbers not the emotion.  Non-Bermudian job losses last year were 45% … Bermudians were 55% with a heavy concentration amongst clerical and other support workers.

Want to see the evolving horror of the Bermuda mortgage sector (ie what’s happening to all us Bermudian homeowners)?  Non performing loans are currently running at 10.2%.  That’s up from 8.3% in the first quarter of 2012, and up from 5.4% in the same period in 2011.  That’s a startling acceleration.  Each of those troubled mortgages represents a personal tragedy for a Bermuda family, and highlights this as an area that requires Government attention.