This is a serious time to review the disparate differences again between the Bermuda Government employees defined benefit plan (the Public Service Superannuation Fund) and the Bermuda private business sector employee defined contribution plan (the Bermuda National Pension Scheme).

My article today was generated by the announcement in the Bloomberg press, “Briton Eyeing Property Punches Air as Pension Limits Axed” by Svenja O’Donnell, March 28, 2014, where “ in the biggest shake-up in the pensions industry in almost a century …. retirees, instead of having to buy an annuity — an income from a life insurer — people will be able to spend their retirement savings however they want.”

Currently, Bermuda employees reaching retirement age (or being offered early retirement packages) do not have this option. Additionally, there are inequitable differences between the distribution payment choices offered to employees of the Bermuda Government in their Public Service Superannuation Fund and those allowed to Bermuda private-sector employees under the Bermuda National Pension Scheme.

Readers wishing to fully understand the differences between these two pensions, the amounts projected to be received, and the distribution choices allowed, can read my prior articles electronically by linking below. Additionally, the articles will be posted to www.marthamyron.com late this weekend under the Bermuda Financial Fundamentals, Retirement, Pensions & Benefits and Planning Your Financial Life: Calm.

Our pension system is not working! Part 4 Jan 21, 2012

http://www.royalgazette.com/article/20120121/COLUMN07/701219974/-1

A series of three articles called Two Gentlemen Retire. John Contribore and George Benefine.

Bermuda Pension Part 1 Defined contributions versus benefits planshttp://www.royalgazette.com/article/20111203/COLUMN07/712039963

Bermuda Pension Part 2 Annuity or drawdown: Do you know the distribution choices for your pension? http://www.royalgazette.com/article/20111217/COLUMN07/712179928

Bermuda Pension Part 3 Retirement: Defined contribution vs benefit plans — how do they compare? http://www.royalgazette.com/article/20120107/COLUMN07/701079978

A number of local and global financial events made the news in the last few weeks; events that at first glance appear to have little in common but raise many financial issues for people close to retirement. As always, in finance and in life, everything is interrelated.

­— The number one concern for retirees everywhere is running out of money; not having the ability to meet their living expenses.

— Bermuda employers are still forced into cutting expenses. Payroll and employee benefits are one of the largest expenses for small businesses.

— Bermuda employees are still losing jobs. Embedded in many of these consistently reported redundancies are individuals encouraged into early retirement packages.

— A senior civil servant recently retired. The Bermuda Public Service Superannuation Plan offers the choice of a 25 percent lump-sum cash distribution along with an annuity income for life (based upon final year’s salary). As also detailed by another illustrious Bermuda financial columnist, Larry Burchall, that amount was considerable.

— According to the S & P rating agency, a large local bank has had a sharp increase in impaired real estate loans — to the tune of an estimated $656 million. In plain English, it appears that more local resident homeowners have fallen behind in their monthly mortgage payments or cannot pay at all. Extrapolating that amount and multiplying by three more local lending institutions (with varying amounts of non-performing mortgages — unverified at this time) may mean thousands of homeowners under severe budget pressure.

— Retirement seems harder than ever, yet managing a successful retirement on a fixed income stream means having little to no debt.

— Forced early retirement in this redundant environment may mean little to no access to a future job (or wages) to pay off a mortgage.

— Interest rate returns are still at or near zero percent return. This means that accepting an annuity income for the rest of a natural life (retirement) in this environment guarantees that your pension will never appreciate beyond the date of the annuity contract. Moreover, the pitiful interest rate offered will be close to a zero return by the time administrative costs for carrying the annuity are deducted by the pension administrator or insurance company. You will virtually be receiving your capital back with no appreciation for the rest of your natural life.

— The average private-sector employee close to retirement seeking to arrange his/her affairs for survival in the so-called golden years may be under tremendous stress with a mortgage to settle, contemplating losing a continuing wage infusion, and the serious concern about losing their home.

— The Bermuda private business sector funds its own retirement defined contribution plans. No cash lump sum distribution is allowed.

— In contrast, civil servants can take a lump-sum payment as part of their retirement package when they retire.

Taken in this context, the Bermuda National Pension Scheme current regulations (while logical for their original inception) are now ironically unfair.

The Bermuda private-sector business is the backbone of this country. They are the employers (and their employees) who work the hardest, who with their own money (and responsibility for their own business debts) are still willing to take the chance to operate businesses.

It is the private sector which responsibly pays the vast majority of the taxes (employees and employer payroll taxes), consumption taxes, real estate, vehicle, boat, conveyance and transfer taxes, etc that foot the bill for government operations as well as funding the defined benefits plan retirement plan for government employees.

Without them, and the taxes they generate, the country would simply fail. Bermuda resident employees (and employers) in the private business sector are the silent majority who generally don’t protest, they are way too busy (and tired) just getting on with our lives. Well, I am protesting for them.

Bermuda Government civil servants wishing to retire have elections within their defined benefit pension distribution programme that have a selective monetary advantage over private-sector employees’ defined contribution pension plan structures. They have a choice of accepting a full pension annuitised monthly payment based upon a formula encompassing their last (and highest compensation) and years of civil service employment. Additionally, as an alternative they can opt to accept up to a 25 percent lump sum cash distribution from the Government pension plan while receiving a lower pension annuity income for their remaining natural lives.

The Bermuda private-sector employee who wishes to retire does not have the same benefit plan, or the same distribution choices. In a disparate irony (little understood), the private-sector employee (and his/her employer), after paying all taxes due (whether voluntarily or under protest of penalties) must then accept a further reduction in their own pay to fund their own retirement.

Whereupon when these Bermuda resident individuals reach that golden age, they are prohibited from taking a 25 percent lump sum payment as already allowed now in the UK and inherent within the Bermuda civil servants’ retirement plans, or investing in alternative strategies. They need to have the right to manage their own retirement money.

This is a major inequitable burden placed on the responsible hard-working people of this country.

The Bermuda National Pension Scheme Law needs to be changed.

Now.

Martha Harris Myron JP CPA PFS CFP® JSM; Summa Cum Laude: Masters of Law in International Tax and Financial Services. Pondstraddler Life™ Consultancy provides consulting in cross border financial planning perspectives for international citizens living, working, crossing borders, and straddling ponds in the North Atlantic Quadrangle: United States, Canada, United Kingdom, Europe, and the island of Bermuda, the premier international finance centre.

Contact martha@pondstraddler.com