Census reports for 2000 and 2010 show that the number of Bermuda’s population aged 65 years and over (our “seniors”) increased from 6,722 in 2000 to 8,683 in 2010. This is an increase of 29.17 percent in ten years.During that period, the number of seniors as a percentage of the total population has also increased, from 11 percent to 14 percent.In 2000, the median age of Bermuda’s population was 37, but by 2010 it had risen to 41.By 2010, 67 percent of over 65s were retired. However, of those in the 65-69 age group, almost half (48 percent) were employed, one quarter of those working as shop and market sales workers and service workers which are generally the lower paid categories of employment.These statistics underscore the fact that Bermuda’s population has been part of an ageing trend.Government’s Statistical Office suggests that this trend will continue and, by 2030, seniors will comprise 22 percent of the total population.What is contributing to our ageing population? Reasons include fewer children being born to each mother, an improved lifespan for older persons (based on improved living conditions that incorporate better healthcare and housing standards) and improved social support mechanisms.Younger persons leaving Bermuda in mid-decade has also recently been identified as a contributing cause of the ageing trend.Why should the SAGE Commission, which was established to examine Government expenditures, be concerned about a population that is growing older and has increasing numbers of people past the age of 65?The age of 65 has been considered as a traditional retirement age since Germany’s Chancellor Bismarck promoted the concept of pensions in the nineteenth century, when the average lifespan was some 25 years shorter than it is today.While the lifespan in developed countries has increased, the “retirement” or “pensionable” age has remained the same. People now live well past 65 years, and in good health, resulting in many more becoming dependent on post-retirement benefits than ever before. More now find it necessary, as well as personally desirable, to continue to work past the traditional “retirement age”.However, not all ageing persons are able to provide for themselves. For more than a century, socially responsible governments have been introducing measures such as state pensions and benefits to sustain their populations.GOVERNMENT SUPPORT TO SENIORSBenefits to seniors have often been provided by way of tax reliefs or subsidies which are equivalent to government spending. Others are provided by way of direct contributions to social support schemes introduced by governments and funded by taxpayers, most of whom are employees.There is no magic source of revenues for a government to spend on benefits. They come from taxes paid by the general population, and most from the working population. If the demand for government expenditures on benefits increases, changes in expenditure priorities have to be considered or adjustments made to the overall level of revenues raised.Problems arise when the long-term nature of retirement liabilities cuts across the lives of governments that may have different social priorities.If we accept that an increasing number of over-65s requires an increasing number of government services, an examination of a government’s expenditure profile on those services shapes its national ageing strategy.In Bermuda, we have heard calls for such a strategy to be formalised. The SAGE Commission is not designed to produce that strategy. It is, however, designed to look at Government’s expenditures.Some of the significant areas of expenditure that Government has incurred by providing subsidised benefits to seniors in Bermuda are:• Healthcare subsidies to treatment at the King Edward Memorial Hospital (KEMH) and at the Mid Atlantic Wellness Institute (MAWI), that begin at age 65 and increase with age.• Land tax relief to persons on their primary residence, provided that its Annual Rental Value (ARV) is below a prescribed level.• Relief from Stamp Duty on the value of the primary residence if included in an estate at death.• Motor vehicle licensing relief for various classes of vehicles licensed by private individuals who are over 65.• Free access to public transportation in the form of buses and ferries.• Financial Assistance directly to those who can establish a need. Seniors feature among the beneficiaries. Fifty-six percent of households headed by over 65s are considered poor or near poor. These numbers are likely to increase as the general population grows older.All of these benefits cost money to administer and undercut Government’s revenue base.BERMUDA’S PENSION SCHEMESSocial Insurance SchemeThe Department of Social Insurance exists to operate the Social Insurance Scheme. Each worker in Bermuda contributes to this scheme on the basis of his or her employment record.While the scheme provides retirement benefits to the over 65s, the benefits aren’t generally enough to sustain individuals who have no other source of income.Social Insurance benefits are not paid from the Consolidated Fund (the Bermuda Government’s general operating fund), but Government does contribute to the Contributory Pension Fund as an employer.The Contributory Pension Fund is currently underfunded by $2.06 billion. If current actuarial assumptions remain unchanged, resources will be exhausted by 2047. Government would be faced with a serious social problem if that were to happen.National Pension PlanThe National Pension Plan (NPP) was introduced to assist employees in saving for retirement and to provide other income to supplement the Social Insurance benefit at age 65. The Pension Commission was established to oversee the NPP. Government contributes to its cost.Social Insurance is structured so that benefits from the Contributory Pension Fund are paid in relation to contributions. The NPP, with a defined minimum contribution, may have either predetermined benefits or benefits related to contributions.Government Employees’ PensionsThe Government contributes separately as an employer to the Public Service Superannuation Fund (PSSF), a pension fund established for the benefit of civil servants and other Government employees, and to the Ministers and Members of the Legislature Pensions Fund (MMLPF), which was established for parliamentarians.These groups receive benefits that are defined in advance of the number of contributions they make, and which are not dependent on the number of contributions. In addition, Government is obliged to pay into the PSSF on behalf of each of its employees on an ongoing basis.If the PSSF ever reaches a level that is insufficient to pay out the promised benefits, (and the PSSF is currently underfunded by $973 million and, on the basis of current actuarial advice, will run out of funds in 35 years), those benefits would have to be paid out of Government’s Consolidated Fund — i.e. its tax revenues.The Government also contributes to the MMLPF on behalf of Ministers and Members of the Legislature (elected MPs and appointed Senators). Costs for this plan are higher than those for the PSSF participants. Its benefits also accrue faster.The costs of these pension funds and the potential liabilities that may be incurred through them are sound reasons why the SAGE Commission is examining the circumstances of these funds.THE EFFECT OF AN AGEING POPULATION ON PENSION PLANSThe ageing population places greater demands on pension funds as employees retire. An ageing population tends to reduce the number of employees contributing to pension funds and increasingly shifts the burden of funding a government’s ageing strategy to the taxpayers.Fewer contributions are made to pension and health schemes just as the demands on them are growing. Government projections anticipate that by 2030, there will be 62 children and elderly for every 100 persons of working age. There will be 36 persons aged 65 and over for every 100 persons of working age, or 2.8 workers for each person aged over 65.Estimates suggested to the SAGE Commission have shown that by 2051, there may be less than two contributions into the Contributory Pension Fund for every benefit payment.In Bermuda, the issue is aggravated by the fact that the funds were not fully funded at the outset and also that there are beneficiaries receiving pensions who did not contribute from the beginning of their working lives.Clearly, on the basis of all forecasts, there will be a community cost of sustaining the ageing population and it will apparently have to be met from a shrinking tax revenue base if Government is to carry the burden.Seniors have a propensity to consume more health services. Government is currently considering how best these should be provided and paid for.Opportunities will be created as demand increases for specialised services to seniors (the majority of whom will be women) and the private sector as well as Government should be alert to them.Arguments can be made both for the continued employment of the over-65s and the raising of the retirement age above 65.Ageing is an inevitable issue that Bermuda has to address. The SAGE Commission will look at a portion of it, making recommendations that are financially sound and supportive in respect of pension funds and Social Insurance.As the Commission examines the effect an ageing population has on the country’s benefits structures, some key questions arise that merit careful consideration:• Should Government be carrying the principal burden of cost of our ageing population?• Should Government be directing expenditures towards seniors or subsidising services?• Should Bermuda’s tax structure be reviewed in light of needs arising from an ageing population?• Should Government’s ageing strategy incorporate amendments to immigration policy to provide more persons of a working age to support Bermuda’s retirees?• Individuals now have some $2 billion in NPP funds to their credit. As the country moves towards the creation of and dependence on defined contribution schemes, do we need more community education on retirement matters?In the final analysis, the Bermuda public has to consider the totality of the ageing issue, as it includes all of us, and we must answer some important questions in the immediate future. How will the population of Bermuda support itself as it grows older? Should the responsibility rest with individuals, a private sector collective, or Government through its taxation policy?These are complex issues that won’t be resolved easily. We need to work together to consider how to strike a sustainable balance between fiscal and social responsibility.