Actuarial Review Of Government’s Pension Plans

“I rise today to advise the Honourable Members of the completion of the actuarial reviews for the Contributory Pension Fund [CPF] for the year ended July 31, 2023, and the Public Service Superannuation Fund [PSSF] and the Ministers and Members of the Legislature Pension Fund [MMLPF] for the year ended March 31, 2023,” Premier and Minister of Finance David Burt said in the House of Assembly today [March 21].

The Premier said, “The pension plan benefit payments are important to the ongoing financial stability and security, as well as the health, of the seniors in our society. It is critical to ensure the long-term sustainability of the CPF & the PSSF. Addressing the challenges these funds face must be a priority of this new Legislature.

“I wish to assure current and future pensioners that the Government is clear on the challenges facing Bermuda’s pension plans. We have started to take the necessary actions to ensure that the PSSF is sustainable, and we will not shirk the responsibility to do the same for the CPF to ensure that the social insurance benefits that many Bermudians expect to rely on will be there for future generations.”

The Premier’s full statement follows below:

Mr. Speaker, I rise today to advise the Honourable Members of the completion of the actuarial reviews for the Contributory Pension Fund [CPF] for the year ended July 31, 2023, and the Public Service Superannuation Fund [PSSF] and the Ministers and Members of the Legislature Pension Fund [MMLPF] for the year ended March 31, 2023, which were tabled in this Honourable House earlier today.

Contributory Pension Fund

Mr. Speaker, the main purpose of the 2023 actuarial review is to examine the financial condition and long-term sustainability of the CPF and to investigate the potential financial implications of future social insurance contribution and benefits increases for the CPF. The actuarial review presents the financial status of the CPF and provides projections for the next 50 years to 2073.

Mr. Speaker, the CPF provides a first-tier or basic pension, disability pension, and non-contributory benefits to some 14,538 seniors and other beneficiaries, the majority of whom live in Bermuda. The maximum social insurance benefit payment is $1,607 per month.

Highlights from the actuarial review are as follows:

• The financial performance of the CPF over the three years was above expectations mainly due to higher-than-expected investment and contribution income.
• The net assets of the CPF grew 8.7% over the three years from $1.97 billion to $2.14 billion. This is 7.1% above the projected value from the previous review.
• Contribution income in 2022/2023 of $135.8 million was 21% higher than in 2019/2020, and benefit expenditure of $203.5 million increased 14% over the three years since the last review.
• Since the last review, the number of contributors has declined from 34,629 to 33,770. The number of beneficiaries has increased from 13,926 to 14,538.
• Benefit rates increased by 2.75% and 4.1% effective August 2021 and August 2023, respectively. No increases were made to the contribution rates during the period.
• Based on the population projection figures, the old-age support ratio has declined since the last review. The ratio was 3.1 in 2020 and is 2.8 in 2023. The comparative ratio using the actual contributors and beneficiaries of the Fund declined from 2.6 in 2020 to 2.4 in 2023.
• 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. Speaker, the CPF is not designed around a policy of full funding but one of sustainable funding, which is contributions and investment income being sufficient to meet the benefits and administrative expenditure on an ongoing annual basis. The demographic changes in Bermuda, like most developed countries, with persons living longer, require changes to ensure that the CPF will be sustainable to provide social insurance benefits into the future. I will speak more to these required changes later in my statement.

Public Service Superannuation Fund

Mr. Speaker, the Public Service Superannuation Fund ['PSSF'] provides contributory defined benefit pensions to Bermuda’s Public Service employees and to employees of some Public Authorities. The purpose of the actuarial review is to determine the going concern financial position of the PSSF, to estimate the costs of the benefits being accrued during the period up to the next valuation date, and to determine the adequacy of the PSSF contribution rate. The report includes a three-year projection of the funded ratio based on assets, actuarial liabilities, and normal cost projected to March 31, 2026. Items of note regarding the actuarial review are as follows:

• The total invested assets of the Fund on March 31, 2023, were $606.8 million [March 31, 2020, $599.4 million]. This represents a $47.4 million or 8.47% increase since the last review.
• Contribution income for the year ended March 31, 2023, was $60.4 million [March 2020, $61.9 million], and benefit payments and refunds totaled $94.7 million [March 2020, $86.2 million].
• There were 4,212 active members contributing to the Fund as of March 2023 [down from 4,476 in March 2020] and 3,414 retirees who were receiving a benefit [up from 3,188 in March 2020].
• The PSSF is not fully funded on the going concern basis. As of March 31, 2023, the net fund assets were $606.04 million, and the accrued benefit obligation was $1.63 billion. The addition of the unamortized 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.

Ministers and Members of the Legislature Pension Fund

Mr. Speaker, the MMLPF provides contributory defined benefit pensions to all Ministers and Members of the Legislature of Bermuda. Benefits in respect of service before April 1, 1988, are paid from the Consolidated Fund. The purpose of the report on the actuarial review is to determine the going concern financial position of the MMLPF; to estimate the costs of the benefits being accrued under the MMLPF during the period up until the next valuation; to determine the adequacy of the MMLPF contribution rate, and to estimate the future benefits payments under the Consolidated Fund of the Government of Bermuda. The report includes a three-year projection of the financial position of the MMLPF [excluding benefits covered by the Consolidated Fund to March 31, 2026]. Items of note regarding the actuarial review are as follows:

• There were forty-seven active members contributing to the Fund as of March 2023 and sixty-two retirees or spouses of retirees and other beneficiaries who were receiving a benefit [up from fifty-nine in March 2020].
• At the March 31, 2023, valuation date, the main assets of the MMLPF consist of an amount due from the Consolidated Fund of $8.85 million.
• The MMLPF is not fully funded on the going concern basis. The members’ and Government’s contributions do not cover the normal costs of benefits earned each year under the MMLPF. The funding ratio at March 2023 was 23.7% and was projected to decrease to 13.1% at March 2026.

Mr. Speaker, Honourable Members are advised that 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.

Ensuring Sustainability of Bermuda’s Pension Funds

Mr. Speaker, the pension plan benefit payments are important to the ongoing financial stability and security, as well as the health, of the seniors in our society. It is critical to ensure the long-term sustainability of the CPF & the PSSF. Addressing the challenges these funds face must be a priority of this new Legislature.

Mr. Speaker, it should be noted that important work has been undertaken by consultants McKinsey & Company and the actuaries TELUS Health, in conjunction with the Ministry of Finance and the Public Funds Investment Committee [PFIC], 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.

As stated in the Speech from the Throne last week, “With the recent compensation agreement reached with public sector unions, it is now time to ensure that public sector pensions are sustainable for the future. Accordingly, the Government will introduce amendments 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.”

Mr Speaker, the Government intends to table these amendments when this Honourable House returns in May, which will put the PSSF in a sustainable position.

The Government continues to advance the consultation regarding the necessary amendments that will make the CPF sustainable. 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. As stated in the 2024 Budget Statement, “the topping up of this fund could be a prime candidate for revenues that may accrue to the Government from the Corporate Income Tax… a suggestion that has come to the Government as part of the ongoing consultation with our local and international business representatives. The rationale is a good one – that social insurance is for all persons in Bermuda and is a critical need for long-term stability.”

Mr Speaker, the need to address the Contributory Pension Fund 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. Speaker, in closing I wish to assure current and future pensioners that the Government is clear on the challenges facing Bermuda’s pension plans. We have started to take the necessary actions to ensure that the PSSF is sustainable, and we will not shirk the responsibility to do the same for the CPF to ensure that the social insurance benefits that many Bermudians expect to rely on will be there for future generations.

Thank you, Mr. Speaker.

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