Bermuda’s biggest pension schemes are underfunded by around $3 billion, the SAGE Commission reported yesterday.

And it said people would have to pay more into schemes, while the retirement age should increase to 68 — and up to 70 if necessary.

And SAGE recommended said health benefits for new retirees should cease — although it said a “seven year declining grandfathering benefit” should be allowed.

The Commission said the Government employees and MPs pension schemes are almost $1 billion short, while the national contributory pension scheme was $2 billion underfunded two years ago.

The SAGE report said: “The stark reality is that promises made regarding pensions will have to be broken.”

The report recommended a gradual move away from defined benefit pensions to defined contribution coverage.

The report said the Ministers and MPs pension fund was, in its current form, underfunded by $23 million — which is predicted to “increase dramatically” over the coming decades.

And it recommended altering the fund from a defined benefit to defined contribution scheme.

The report explained: “Under the defined contribution scheme, the participant and Government each contributes five percent to the fund.

“Each participant has choices as to how the fund is invested and at retirement will receive the accumulated value in the form of an annuity.”

Other suggestions by the Commission is that the final five years’ salary should be used to calculate benefits, rather than salary at retirement age, and an end of cost of living increases.

The report said that the Public Services Superannuation Fund would run out of cash in 30 years if its problems were not addressed and that the ultimate goal should be a defined contribution scheme as well.

It added: “The underfunded portions amount to $873 million. If this scheme were to run out of funds, Government would be required to raise the necessary monies through taxation. This fund is too costly to continue in its current form.”

And the report warned: “Changes need to be made sooner rather than later as further delay will result in greater costs or harsher penalties to the participants and the retirees.”

But it added: “The SAGE Commission’s recommendations are designed for the burden to be shared by the community and by participants of the pension plans, which we believe is the fairest practice — the onus for providing for a community’s retirement is adopted by every everyone in the community.

“However, without immediate changes to the manner in which pension schemes are funded and the quantum of the benefit provided, the effect could be devastating.

“The related debts could cripple Government and younger generations would shoulder a terrible financial burden.”

The report also recommended SAGE also said that the Government employee health insurance scheme needed to be changed, with a fixed amount to be paid on behalf of current retirees equal to the amount currently paid by Government for this benefit for the retiree, their spouse and any dependents.

It also said that only the current spouses and dependents of retirees should benefit if the retiree dies.

The SAGE Commission said: “If a spouse subsequently remarried on the death of a retiree, then the spouse and any new dependents will no longer be eligible for any health benefits.”

And it added that new retirees would not be eligible for spouse or dependent benefits — although they could remain in the Government plan and pat the full premium for family members.