Bermuda Pension Holiday: Holidays Aren’t Always Fun

On August 1st of this year, a pension contribution holiday for both employers and employees went into effect throughout Bermuda. Each group will be given the choice to not contribute their five percent retirement pension plan contribution through July 31st, 2013.

Months before, the country’s Premier Paula Cox stated the decision to enact the ‘holiday’ was in recognition of the fact that “employers are under pressure, and as our economy heads to recovery we must reduce pressures on companies that will cause them to shed jobs.”

Premier Cox was equally quick to point out that “this is a temporary measure that will provide temporary relief to employers and additional income to employees {which} provides stimulus to our economy. Stimulus leads to growth and creates jobs and that is what our economy needs.”

While acknowledging economic realities and the intent behind this pension ‘holiday’, many pension/retirement plan administrators like FMi are concerned about the losses this action will wreak upon plan recipients in the future. While not all companies in Bermuda are expected to participate and discontinue contributions, those working for the ones that do will face consequences later on.

“We certainly understand the argument for the ‘holiday’, and don’t want to see people or businesses lose jobs,” says FMi Vice President Peter Macaluso. “However, there’s really no way to quantify how many would be lost, or the number of companies that would be hurt if it wasn’t enacted. But we can quantify the future earnings lost when these contributions are not made, and that is something we don’t like to see.”

Here’s an example of long term savings impact: If you have an annual salary of $75,000 between you and your employer you would contribute 10% or $7,500 for the year. If invested in a moderate portfolio with an annualized return of 8% the long term impact would be:

From age 30 to retirement you could miss out on $110,891 of retirement savings
From age 40 to retirement you could miss out on $  51,364 of retirement savings
From age 50 to retirement you could miss out on $  23,791 of retirement savings
From age 60 to retirement you could miss out on $  11,020 of retirement savings

As the numbers clearly show, the losses over time are considerable. So there are merits to both sides of the discussion. “At FMi, we’re not completely against the contribution ‘holiday’,” Macaluso continues. “If it does indeed end up saving jobs, I can obviously see its benefit,” “Our belief is, especially since not every company will suspend their contributions during this period, that few jobs would be lost if there was no ‘holiday’, and that those that would have been would eventually come back. All we truly know with absolute certainty is that a lot of people stand to lose income on their pensions during the coming year. And I’m not sure everyone understands the full impact this ‘holiday’ can have in terms of preventing them from reaching their retirement goals.”

To learn more about the current Bermuda Pension/Retirement Plan ‘Holiday’, you can contact one of FMi’s helpful sales representatives at (888) 960-1801, who will be happy to explain if, and how, it affects you/your business in detail, as well as answer any questions you may have.

Tags: , , , , , , , , , , , ,