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Making Your Pension the Foundation of Your Holistic Retirement Plan

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By: Robin Trimingham

As many readers will be aware, the Government of Ber­muda recently decided to make amendments to the National Pension Scheme (Occupational Pensions) Act 1998. These changes reflect the fact that both regulatory practice and pension provider practice has evolved since the Act was introduced 20 years ago.

The Act is administered by the Pension Commission, which is a quango (otherwise known as a private entity with a public purpose). The primary functions of the Pension Commission are to register pension plans, provide oversight for the ultimate protection and benefit of all pension plan members by serving as a market conduct regulator inter­facing between the pension providers and their individual pension plan members, and advising the government on any pension-related matter as required.

Essentially there are 3 pillars, (or layers of coverage), that combine to make a private pension scheme. The first pillar is government social insurance; the second is the nation­al pension scheme (which supplements social insurance), and the third pillar is discretionary income which individuals invest privately.

According to Peter Sousa, the Pension Commission­er, “employer pensions are becoming a primary source of retirement income and the changes are being made to the National Pension Scheme in keeping with changes being implemented in other jurisdictions such as the UK.”

These changes will provide the Commission with more re­sources through the collection of fees from pension provider companies that cannot be passed on to plan members. In turn, the Commission will initiate provisions to ensure pen­sion providers are giving good advice and require employers to keep comprehensive records in relation to pension plans. The Commission will also be empowered to assess new penalties on employers who fail to meet their obligations under the Act, and even require employers to pay interest on any delinquent contributions.

In keeping with policy in other jurisdictions, once these changes have been fully phased in, all employed persons over the age of 23 who have not reached retirement age will be required to have an employer pension regardless of their immigration status, and all individuals will now have greater access to their funds upon retirement.

At retirement, any account balance below $50,000 can be taken as a lump sum cash settlement. Additionally, for ac­counts in excess of $50,000, a member will be able to make an application to take up to 25% of their account balance (or 25% of the commuted value of their benefits if they are en­rolled in a defined benefit plan) in a lump sum cash payment. This will enable individuals to use the money more effectively then would be the case if they were only able to access a small monthly payment over a prolonged period of time.

Non-Bermudians who have paid into a pension scheme will be able to transfer their pension balances to another plan overseas when they leave the island, or apply to receive a cash withdrawal if the Commission is satisfied that the individual has no existing connections to the island (such as a Bermudian spouse) and does not ever intend to return to Bermuda.

The Pension Commission plays an important role in ed­ucating the public. “A holistic retirement plan does not just provide money for expenses in retirement,” says Sousa, “it is the foundation of dignity and quality of life as you age”.

Equally, the public needs access to trustable information regarding the financial impact of these lump-sum withdraw­als on monthly retirement income, and good advice regard­ing how to invest retirement income so that it continues to grow throughout your retirement life.

To address financial hardship situations, Sousa says that individuals have always been able to make an application to receive up to 20% of their occupational pension con­tributions balance to offset uncovered medical expenses, mortgage arrears, rental arrears, or educational expenses for themselves or a dependent.

These hardship Applications are limited to once every 5 years and a maximum of twice in a lifetime and the total amount cannot exceed 20% other pension balance.

As a result of the recent amendments, both employed persons and retirees (regardless of age) are eligible to apply for financial hardship payments, and the funds are also available to meet the cost of on-island funeral expenses or to cover the cost of housing for University students studying abroad who live off-campus.

Retirement planning is about more than just your pension fund accumulation. The core issue according to Mr Sousa is to understand your pension plan as early as possible and ask questions with your pension provider on a regular basis. It’s your pension and you must be aware of how it works today, in the future, and especially in retirement.

The Bermuda Pension Commission is located at Wessex House, 45 Reid Street, Hamilton (441) 295-8672 [email protected]­sioncommission.bm

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