‘Urgent action needed’ to sustain public sector pension funds
Now is the time to ensure that public sector pensions are sustainable for the future, David Burt has told Parliament.
The Premier and Minister of Finance made the assertion during a ministerial statement on the actuarial review of government pension plans in the House of Assembly.
The reviews cover the Contributory Pension Fund for the year ended July 31, 2023, and the Public Service Superannuation Fund, and the Ministers and Members of the Legislature Pension Fund for the year ended March 31, 2023, which were tabled in the House during the morning session.
Mr Burt said: “The pension plan benefit payments are important to the ongoing financial stability and security, as well as health, of the seniors in our society. It is critical to ensure the long-term sustainability of the CPF and the PSSF.
“Addressing the challenges these funds face must be a priority of this new legislature.”
He said amendments will be introduced in May to the Public Service Superannuation Act 1981 that will “eliminate the growing unfunded liability to taxpayers and ensure the fund’s stability into the future”.
He said that consultation continues regarding necessary amendments that will make the CPF sustainable, adding: “The funding gap for the CPF is larger and a more difficult issue to resolve given the rapidly ageing population, and persons living longer and drawing more benefits over time.”
Mr Burt said, as stated in the 2024 Budget Statement, that the fund could be a “prime candidate” for corporate income tax revenues.
He said: “The need to address the CPF is an urgent one. Whether the answer is future revenues from the corporate income tax, changes to contributions, or increases in the eligibility age for social insurance, the Government looks forward to a bipartisan consensus to advance the difficult but necessary changes to ensure this fund is sustainable.”
Mr Burt explained that the main purpose of the CPF review is to examine the financial condition and long-term sustainability of the fund, and to investigate potential financial implications of future social insurance contribution and benefits increases.
It provides projections for 50 years to 2073.
The CPF offers a first-tier or basic pension, disability pension and non-contributory benefits to 14,538 seniors and other beneficiaries, most of whom live in Bermuda. The highest social insurance benefit payment is $1,607 per month.
Mr Burt said: “At current rates, the fund is projected to decline steadily until it is exhausted in 2042 under the best-estimate scenario. This is two years earlier when compared to the previous review.”
Mr Burt said the financial performance of the fund over three years since the last review was above expectation and its net assets grew 8.7 per cent to $2.14 billion. This is 7.1 per cent above the projected value from the previous review.
Contribution income in 2022-23 of $135.8 million was 21 per cent higher than in 2019-20, and benefit expenditure of $203.5 million increased 14 per cent over the three years.
In the same period, the number of contributors declined from 34,629 to 33,770 and the number of beneficiaries increased from 13,926 to 14,538.
Benefit rates rose by 2.75 per cent and 4.1 per cent, effective August 2021 and August 2023 respectively. No increases were made to the contribution rates over that period.
The PSSF provides contributory defined benefit pensions to Bermuda’s employees in the Public Service and to workers at some public authorities.
Its report includes a three-year projection of the funded ratio based on assets, actuarial liabilities and normal cost projected to March 31, 2026.
Mr Burt said the total invested assets of the fund on March 31, 2023 was $606.8 million, representing an 8.4 per cent increase since the last review. Contribution income for the same period was $60.4 million compared with $61.9 million in March 2020. Benefit payments and refunds totalled $94.7 million compared with $86.2 million in 2020.
There were 4,212 members contributing to the fund as of March 2023, down from 4,476 in 2020.
As of March 31, 2023, the net fund assets were $606 million and the accrued benefit obligation was $1.63 billion.
Mr Burt said: “The addition of the unamortised actuarial losses of $192.2 million gives the pension liability of $1.22 billion recorded and disclosed in the March 31, 2023 audited statements of the Consolidated Fund.”
The MMLPF provides contributory defined benefit pensions to all ministers and members of the legislature. Its report includes a three-year projection of the financial position of the fund excluding benefits covered by the Consolidated Fund to March 31, 2026.
There were 47 active members as of March 2023 and 62 retirees/spouses of retirees and other beneficiaries receiving benefit — up from 59 in 2020.
At the March 31, 2023 valuation date, the main assets of the fund consist of an amount due from the Consolidated Fund of $8.85 million.
Mr Burt said: “The funding ratio at March 2023 was 23.7 per cent, and this was projected to decrease to 13.1 per cent at March 2026.
The next actuarial review of the CPF is scheduled for the period ending July 31, 2026, and March 31, 2026 for the PSSF and MMLPF.
Douglas De Couto, the shadow finance minister, asked the Premier for a general outline of the changes planned for the PSSF pensions.
Mr Burt said changes include the reference year and wage, the age of eligibility for receiving the benefits or introducing contributions.
“The solution ... is a combination of all three,” the Premier said.
In his statement, Mr Burt said: “It should be noted that important work has been undertaken by consultants McKinsey & Company, the actuaries Telus Health, in conjunction with Ministry of Finance and the Public Funds Investment Committee, on tackling these funds.
“Following consultations with the public sector unions, in 2024 Cabinet approved the recommendations for revisions to the PSSF, to which the unions have given broad support.”
• To read the ministerial statement in full, see Related Media
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