The fund that provides Bermuda Government pensions is due to run out in 17 years. That is the conclusion of actuaries in their most recent analysis the Contributory Pension Fund in 2023.
Already the benefits being paid out by the fund exceed the social insurance contributions being paid in by nearly $70 million.
Next year is projected to be the first in which benefits will exceed the sum of contributions plus investment income, starting the downward trajectory that leads to exhaustion by 2042.
Simply put – without significant changes – Bermudians in their mid-40s and younger are paying into a pension fund that will not pay them a cent in retirement.
To change that outlook, David Burt, the Premier and Minister of Finance, has promised to look at proposals to reform the CPF in 2026.
Lawmakers are likely to be asked to consider adjustments to one or more of three key variables: benefits, contributions and retirement age.
In 2025, there are more than 15,000 CPF pension recipients, a number that has risen 44 per cent in the space of 14 years, as baby boomers exit the work force.
On the other side of the ledger, the number of contributors fell by nearly 6 per cent between 2011 and 2023, as the size of the workforce declined. As of 2023, there were on average 2.3 people paying into the fund for each pension recipient. As the actuarial report noted, “the CPF is not financially sustainable for the long term”.
This year the Government enacted reforms for the Public Service Superannuation Fund, which benefits public service workers, and which had been on course to run out by 2045.
The changes raise the minimum age for uniformed services to collect full pensions from 50 to 55, and for most other civil servants from 60 to 65. There was also an increase in contributions — from 9 per cent of salary to 11.5 per cent for uniformed services and from 8 per cent to 10 per cent for other civil servants. The changes will be implemented between 2027 and 2035.
A change in retirement age seems logical, given the increase in life expectancy. A study by the Organisation for Economic Development and Cooperation found that in 1980, men would on average have 14 years in retirement after exiting the workforce, and by 2022, this had increased to 18 years. For women, the retirement period grew from 18 years to almost 23 years over the same period.
Many countries facing an unfunded pension liabilities crisis have opted to raise the retirement age. Australia, Denmark and Iceland, for example, have an official retirement age of 67.
Britain is one of several countries going through a graduated increase: the state pension age went up to 66 in 2020 and is scheduled to climb to 67 by 2028 and to 68 by 2037.
In some nations, there are financial incentives for delaying retirement. In Canada, for example, people who retire at 65 receive the standard monthly payment. If they opt to retire at 60, they receive 36 per cent less. And retiring at 70, they would pocket 42 per cent more.
All that said, in Bermuda total reliance on a government pension to cover all living expenses would seem unrealistic. The basic pension is $1,206 per month and the maximum is $1,752. Subtracting the minimum premium for the government-run FutureCare health plan for seniors — $530 a month — would not leave much to pay other bills.
For many Bermudians, their occupational pension plans, funded by 5 per cent deductions from wages and a matching contribution from their employers, will provide more of their retirement income than their government pension.
When leaders of the pension fund management industry spoke at the CFA Society Bermuda’s Pension Breakfast Seminar in September, their message was clear: we all need take charge of our own retirement funds, rather than rely on underfunded, government-run pension schemes.
The panel noted the average pension balance in Bermuda is about $150,000 — compared to the average balance of $313,000 in American 401(k) retirement funds — for people aged 45 to 55. Local factors such as mid-career withdrawals, maternity leave and the gender pay gap make the shortfall more pronounced, they said.
To achieve an income of 70 per cent of pre-retirement income, it is likely many of us may need to work for longer, or contribute more to our pension funds, or both, the panellists remarked.
The idea that retirement happens at an age set by the Government was challenged by Karl Smith, head of pensions, life and investment at Freisenbruch, who said: “It’s not. It’s a time set on you with regard to what you put in, what plan you put in place, and it’s that planning piece that we’re all missing.”
In practice, it’s clear that in Bermuda many people are not stopping work at 65. According to the latest Employment Briefs survey, Bermuda’s workforce includes more than 3,000 people aged 65 and over, representing 9 per cent of the workforce.
Another factor that can have a significant impact on the growth of a pension nest egg is the fees charged by a fund administrator. A report by the US Department of Labour illustrated how a difference of 1 percentage point in fees charged over time reduced an example pension plan’s closing balance by a staggering 28 per cent.
In July last year, Mr Burt said that from 2020 to 2023, it was estimated that plan administrators collectively earned gross administration fees of more than $500 million, based on a typical annual fee of 1.5 per cent of a plan member’s balance.
In September this year, MPs passed legislation that limited what local defined contribution pension plan administrators can charge to 0.5 per cent when the account balance is below $25,000; 0.5 per cent when below $50,000; and 1.25 per cent when the account balance is above $50,000.
