Superannuation Fund Report Tabled In House

Premier and Minister of Finance David Burt tabled the Public Service Superannuation Fund Actuarial Report in the House of Assembly.

“The purpose of the Public Service Superannuation Fund [PSSF] is to provide retirement pensions for retired employees of the Government of Bermuda and the employees of various quasi autonomous non-governmental organisations,” the Premier said.

The Premier’s full statement follows below:

Mr. Speaker, in accordance with section 8A of the Public Service Superannuation Act 1981, I have tabled the Public Service Superannuation Fund Actuarial Report as at March 31, 2017.

Mr. Speaker, The Public Service Superannuation Fund [PSSF] was established on April 1, 1982 by the Public Service Superannuation Act, 1981 ["the Act"]. Members will be aware that the purpose of the Public Service Superannuation Fund [PSSF] is to provide retirement pensions for retired employees of the Government of Bermuda and the employees of various quasi autonomous non-governmental organisations.

The plan is a typical Defined Benefit plan. Mr. Speaker, a Defined Benefit [DB] pension scheme is often regarded as more valuable than a Defined Contribution [DC] scheme. This is because the benefits from a DB scheme are often calculated as a proportion of final salary, with the employer carrying the investment risk, while DC benefits depend on the investment performance of the participant’s account or “pension pot”.

Mr. Speaker, the most significant events disclosed in the Actuarial Valuation are as follows:

• The market value of assets as at March 31, 2017 was $574.1 million compared to $572.7 million in 2014 when the last review was conducted. The asset value of $574.1 million represents roughly 7.9 times more than the annual projected payout of some $72.5 million in pensions for 2017.

• The actuarial liability was $1.444 billion as at March 31, 2017 compared to $1.360 billion in 2014. The actuarial liability is based on the benefits earned up to the valuation date assuming the PSSF continues indefinitely;

• The unfunded liability was $844.3 million as at March 31, 2017 compared to $796.6 million in 2014. The unfunded liability is the difference between the actuarial liability and the actuarial value of assets;

• The ratio of pension assets-to liabilities, or funding ratio, for the PSSF was 41.3% as at March 31, 2017 compared to 41.4% in 2014.

Mr. Speaker, as mentioned above, the latest actuarial review shows a funded ratio of 41.3% for the PSSF as at 31 March 2017. Honourable Members are aware that the PSSF has a guarantor in the Government as far as benefit security goes. However, because of the risk that these unfunded liabilities present to the Government, it is fiscally prudent for the Government to adequately fund and to plan for these, albeit long term, obligations and maintain the funding ratio at an acceptable long term target level. It is important to note that to achieve sustainable solvency, it is not necessary that all accrued benefits be fully funded.

Research of the funding statuses of regional and international public service pension plans indicate that there is no internationally prescribed funding level. For instance, most of the Caribbean Community [CARICOM] countries and the UK generally have pay-as-you-go government sponsored pension plans that are paid out of their Consolidated Funds. Accordingly they are fully unfunded. In contrast, various government-sponsored occupational pension plans of Canadian provinces are either fully funded or close to fully funded.

Honourable members should note that the following actions have been taken over the years in order to improve the sustainability of the PSSF:

• 2006 – 2008 PSSF contribution rates were increased from 5% to 8% and 9.5% for regular members and uniformed officers respectively. The increase in contributions resulted in an improvement in the cash position of the PSSF;

• In June 2014 the automatic Cost of Living Adjustment [COLA] increases were suspended for pensioners until such time as the sustainability of the PSSF has been improved. Honourable Members are advised that the COLA provision added about 23% to the PSSF liabilities and this change improved the sustainability of the Fund.

Mr. Speaker, despite these actions, the PSSF remains underfunded and there are no simple remedies to resolve the underfunded position of the Plan. To assist with the review of this pension plan, a Pension and Benefits Working Group [PBWG] was established by the former administration. The purpose of the PBWG was to review all public sector pension plans, and make recommendations to Cabinet in order to ensure the sustainability of these plans and benefits in a manner that is responsible and fair to both the pensioners and members of the plans and Bermuda taxpayers. Following this review the PBWG proposed the following changes to the Plan:

• Change the final average earnings [“FAE”] definition from “the salary payable to him immediately preceding the date of his retirement” to an average of his earnings over the five years preceding his date of retirement [or termination].

• Increase the age at which an unreduced pension is payable from 60 to 65 [55 to 60 for special groups].

• Apply actuarial reductions on early retirement prior to age 65 [60].

• Increasing contributions.

Finally, this Government has also decided to explore the option of increasing the retirement age on a voluntary basis to 67 and assess the impact that this action would have on the Plan.

Mr. Speaker, the Ministry of Finance will engage the Government’s actuary of record to consider the impact that the above mentioned changes to the Plan would have on the long-term sustainability of the Fund. It is anticipated that this engagement will be completed in the third quarter of 2018 and will be shared with this Honourable House.

Mr. Speaker, as per this Government’s normal custom and practice, the appropriate consultation with the various stakeholders, specifically the public sector unions, will be conducted before any changes are made to the provisions of the plan.

In closing, Mr. Speaker, I wish to assure current and future pensioners that the Government is sensitive to the challenges facing pension plans of this nature and will take appropriate steps to preserve the long term financial viability of the Fund.

Thank you Mr. Speaker.

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