Open mike: Pension write-off

Tiger Bay is concerned by the confusion about how much of the debt of the civil service pension fund the Government has written off - and the failure of Finance Minister Paula Cox to clear things up:

"Last year she announced that a "substantial portion" of a $44 million gap in the Government pension would be paid down. As it turns out, that "substantial portion" was in fact $53 million!"

From the Royal Gazette:

When pressed for further clarification on what appears to be an apparent write-off of $53 million, Ms Cox responded: “There is no further comment to be made by me in this regard. You may be seeking to do your job and I give you the benefit of the doubt in that respect but I have no further comment to what I have previously provided.”

Comments

[confused on 07.03.06 at 14:04]

i don't understand how this gov can consistantly get away with not providing details to any financial decisions that they make. should they not not be held accountable? why is "no comment" acceptable? it seems as if they are trying to hide something. otherwise, why would transparency be too much to ask for? seems pretty simple..."the write-off was going to be $XX, turns out its $XXX, and let me tell you why that is...".

liars and cheaters, punishing the people of this country. maybe one day their voters will all wake up.

[Tiger Bay on 07.03.06 at 14:32]

To be fair, Paula Cox came forward yesterday in Parliament with some additional information. She said she's merely fixing problems that extend back to the 1970's and the UBP.

Without doubt, the pension has structural problems dating far back.

That does not absolve her from being clearer about what is going on today under her watch, not only with the funding but also with the governance.

All meetings dealing with the pensions should be public, and all obligations/performance/funding information published in a timely manner.

[observor on 07.03.06 at 14:51]

I don't know Tiger, her comments in the House were typical PLP spin ... point the finger at someone else rather than be honest about the reality at hand. Hasn't the current government prepared at least one actuarial report since coming to power? Would this document not be the driving force behind pension determinations?

[sandgrownan on 07.03.06 at 15:05]

I can already PLP apologists banging away at their keyboards with self righteous indignation.

[Craig on 07.03.06 at 15:05]

I'd dearly love to know why it is that each of us are paying into a Government Pension Fund in addition to the Government Mandated External Pension Fund. From the little I've been told - we aren't likely to see any funds at all from the Government Fund when we finally hit retirement. (which was why the external funds were mandated to be set up in the first place!)

Hence my question - why are we still paying into this fund? As far as I can tell - it is little more than a tax that is being spent on whatever the Government of the day wishes.

The other explanation I've heard is that the Government Pension Fund was so badly off due to many different problems (including previous Governments before we go off on any tangents) that the present Government is still charging us in order to continue to provide benefits to those who are already at retirement..

Now we hear that the Government has essentially spent an additional $53M to bail the fund out AND are contemplating raising the assessment on each of us to boot!

If the proposed increases in pension contributions are made to the external (non Government managed) pension fund program - that is probably OK and can be justified based on longer life expectancy and increase in medical costs (to name a few).

If the contributions are going to be mandated into the Government Fund - I have a big issue with it based on prior track record. Based on the comments in the press recently - it would appear that no-one has had a clear handle on this issue for over 20 years!

[Canuck in Bermuda on 07.03.06 at 15:21]

Man, in the rest of the world we have inquiries about this kind of stuff.

"What, you don't want to tell us why there was an increase of over 20%?" - "Okay, time to do the independant inquiry thing... we'll get back to you"

The ONLY reason this kind of stuff flies is because there's essentially no income/corporate tax... people don't seem to think "hey, that's my money!" as much when it's consumption taxes rather than seeing a big fat chunk of your paycheque just disappear. There's *probably* a very vaild reason, but constantly "no comment/how dare you lecture/platation"-ing things just makes it seem like something sneaky's going on.

I bet 95% of the stuff that seems shady really isn't, and the other 5% isn't nearly as bad as it seems. The current admin will never get my support (not that it matters) because of the rather regular barrage of racist/anti-foreigner rhetoric I've heard during my time here... but with a change of tune I'd probably get behind the PLP being a general supporter of labour parties. This admin needs a PR guy *fast* - ranting against a group of people where a fair chunk of them can't even vote is one thing, but playing cloak and dagger finances with everybody is another matter entirely.

[Zoom on 07.03.06 at 15:30]

"This admin needs a PR guy fast."

This government has an in-house communications team with an annual budget of $1.75 million and 18 team members.

A few of which are apparently denizens of this blog!

[Canuck in Bermuda on 07.03.06 at 15:34]

Well, as the skit goes... those responsible will be sacked

or should be...

[SmokingGun on 07.03.06 at 15:38]

I guess a $9 Million discrepency is no big deal when the economy is so flush. The fact that our Minister of Finance doesn't feel it's her duty to explain a discrepency of that magnitude only says one thing. She is clueless about how it undermines everything that she had built up as one of the more respected and trusted people in our government. To put it lightly, Minister Cox blew it.

[silencedogood on 07.03.06 at 15:45]

Canuck,

I'm enjoying your posts. It's interesting to get the perspective of someone fresh off the boat, as the saying goes.

I couldn't agree more with your last comment, but I laugh when I think about whether that will ever happen. Think irony--Bermuda is another world.

[Tiger Bay on 07.03.06 at 15:59]

We know that Gov raised millions in surplus taxes last year - so I guess we should be happy that some of it is being dedicated to the pension shortfall.

However, the lack of clarity of what is going on is troublesome.

[OnDeWata __/)__ on 07.03.06 at 16:42]

The usual smoke & mirrors is worrisome, but then we shouldn't REALLY be suprised should we?

On another accounting-ignorance note: WTF is ANY viable 'business' doing writing off $14 million let alone $50+ and from a Pension Fund no less??? I guess I should have paid attention in accounting class!!

[Morgan on 07.03.06 at 16:54]

Anyone know the facts?
I think it's a defined benefit plan, and they've been funding it on a "pay as you go" basis (in other words paying the pensions that come due out of government coffers instead of the pension funds).
Between insufficient funding, optimistic actuarial tables, and investment underperformance (they paid, they played, they sucked) it's in trouble.

But are we stuffing it with cash without fixing its problems? Can't tell unless government is more transparent. And why do they get a defined benefit plan when the rest of us only get a defined contribution plan!?!

[sandgrownan on 07.03.06 at 17:08]

Because, Morgan, they're in politics for themselves. They simply couldn't give a shit about the man in the street.

[SmokingGun on 07.03.06 at 17:51]

One of the biggest scams in Bermuda is the dividend scam. Wealthy business owners get taxed on their salaries just as everyone else. They do not get taxed on the dividends they receive as owners of their companies. So the simplest way to avoid taxes is to pay yourself a low salary and at the end of the year give yourself a large dividend.

Well guess what - the average working joe ends up paying for most of the infrastructure and the wealthy ones get to enjoy it with minimal investment. The rich get richer and they don't pay their share. And it's not just the wealthy anymore. Why else do you think certain public companies are being taken private. Less is more.

[jake on 08.03.06 at 09:35]

The fund has not under performed.

Actuarial assumptions changed, increasing its underfunded status.

There are two funds. One is defined benefit, and the other defined contribution. They are legacy funds, in that no one today would launch a defined benefit fund. It is a problem inherited from the past (and although they were UBP that is not the reason it was messed up. Most companies of that time had db funds - see General Moters for example).

Paula Cox is doing an excellent job, but she cannot be blamed for the aging of our society and the change in actuarial assessment. The writers here act as if she has not been addressing these issues: she has.

I support her.

[Tiger Bay on 08.03.06 at 09:40]

Hi Jake - it does sound like she is doing the right thing. However, we need more clarity and transparency relating to these pensions. Her statement that she simply doesn't want to talk about it is insufficient, particularly given the murky governance issues.

[Lost in Flatts on 08.03.06 at 09:49]

Jake - If that's true then fine, I think that's fair play and clearly it's not her fault. I do however believe she should have just said that, its not hard to understand, and then we could all of had an explanation. I think the frustration is not only about the prension fund, but also her unwillingness to discuss its problems.

[SmokingGun on 08.03.06 at 10:06]

Jake - me thinks you need to send a letter to the papers so the rest of the island understands the exact reasoning behind her decisions. Heck even let people know you support her.

Then I think you need to send her a bill for your time and services.

[Bill Cook on 08.03.06 at 10:28]

Mrs Cox's comments are accepted by the faithful but I am an agnostic and faith is not paramount to me and probably many others.

It always causes doubt when one is dismissed by "thats all I am going to say " leaving important questions unanswered.

How much more credit would she have gained by saying I will give you a detailed reply once I have all the pertinent information on hand but I do not want to say further until I can be definative,and accurate.

She may very well not had all the information and to give a statement that she would be held to and was being sensible as the press would likely jump on it.

[Zoom on 08.03.06 at 10:41]

Minister Cox provided additional details in today's RG. $87 million has been injected in the past two years - that number, she grows fast. Holy wow batman; that's like half a Berkeley!

In addition, the amount that civil servants pay into the fund will go up by 1% annually for the next three years, which may explain the very generous pay increases given to the civil service recently. A pass through.

[Zoom on 08.03.06 at 10:44]

"Ending on a note of conciliation, she said that there was now a real need for cross-party action over the pensions problem."

Now that's what I like to hear!

[SmokingGun on 08.03.06 at 11:29]

Bill - last time I heard when it came to handling the books, credibility was everything. Otherwise you're just a chef.

[Bill Cook on 08.03.06 at 11:35]

To date to the best of my knowledge no one has addressed the shortfall of contributory pension monies by being witheld by the employer instead of being paid in that is contributions by both employer and worker.

I think contributory pension funding started back in 1968 so this could be a significant sum.

Personally I recd nothing by way of pension prior to 1968 from my employment by government.

I wonder how many people know if their payments are up to date, as it may be an unpleasant shock when they reach 65.

[Canuck in Bermuda on 08.03.06 at 13:14]

I used to be in DB pensions before I switched practice area and came down there... this kind of stuff can and does happen, even in much more regulated environments (I'm assuming the standards for valuation frequency and funding are a little more lax here, Canada's pretty uptight about such things)

All she needed to do is tell people why the change happened. The general population isn't as dumb as governments like to think... most people will understand the concepts involved, and for those who want the inner workings there's people like me around who can do a decent job of laying things out on the back of a napkin over a couple of pints.

Governments tend to have a lot more support from their citizens when they're not treating everybody like children who "wouldn't understand anyways"

[Tim Taylor on 08.03.06 at 20:28]

Canuck may have a point here. As everyone knows, I'm not exactly a rocket scientist when it comes to the economy, but neither I nor the general public are total dimwits. If the Ministry would just give us a decent press release saying: "We did this, investing so much, and because of so and so the interest we hoped to earn hasn't materialised, and therefore..." We'd get it. We'd understand. It's the "How dare you question us" thing (which may, charitably, be possibly a product of media out-of-context quoting) that burns me. As someone on this thread said earlier, it's OUR money, we'd realylike to know what's happening to it. Especially if we hope to use it for retirement. We don't expect miracles... but we do expect results, or explanations. Government might want to consider that less is not more when it comes to transparency - and wasn't that what Dame Smith was so hot on in the "Make It Happen" Election? We're not going to blame the Government for not being clairvoyant investors, we just want to know the facts.

[Bundy & Coke on 08.03.06 at 23:30]

It is not that they need to get a PR... they need to get a competent PR. The government's media department is not offering good value for the millions. Like it or not, it is an important part of government - but either the PR department is failing or the powers that be just don't listen to the advice they are given. Either way, Minister Cox does seem to be one of the more competent - but her response in this case is not acceptable. She needs to patiently explain clearly - now matter how annoying she finds the journalist to be.

[jake on 09.03.06 at 07:51]

The problem with your assessment of this situation is that you have not followed her part of the story. She is providing this information, but let's be honest, many of the reporters are not of the same caliber as their peers in the financial markets. Every story is not about a scandal - but that is the twist they often take.

1. The Government does not invest the money. It is invested by professional managers, selected by the Minister of Finance after she consults the Public Funds Investment Committee, who make recommendations to her and is assisted by the Pension Consultant.

2. The returns have not been poor. They have been north of 9% last year which puts our funds into the top quartile for investment funds.

3. The problem is that the funds are not invested just for returns, but so that they fund pension obligations. The obligations in a defined benefit plan cannot, by definition, be controlled by the Government. They are based on calculations made long ago on what the funding obligations were thought to be. People lived longer than was supposed and the money we thought we would need has turned out to be less than we actually need.

4. Pension funds around the world are experiencing the same problems. They are "underfunded" in the sense that there is a mismatch between the assets and the actuarially calulated liabilities.

That is where we are. The allegations against Brown and the Consultant should be examined, and when the findings are released we should deal with the matter then. Throwing mud at Paula Cox over the pension position - as the reporters question was designed to do - is not productive. Understanding the issues and reporting on them in a sensible fashion would be.

[Tiger Bay on 09.03.06 at 08:27]

Thanks for the info Jake. Info on this is hard to come by. Minister Cox has a website and should use it to provide the more detailed analysis that the media cannot or will not. Please no spin; just facts!

[tilti on 09.03.06 at 10:30]

Jake has it right on, and if anyone is interested there is a great book called "the coming generational storm" that deals with pension problems around the globe.
What you don't address in your reply, however, is that from what I can tell the actuarial accounts are not due solely to people living longer, the problem has also been incredibly exacerbated in Bermuda by huge growth and high inflation. Inflation has grown under the PLP and they need to address this, and they also need to essentially double their efforts to combat the growth here.

[SmokingGun on 09.03.06 at 12:41]

"the problem has also been incredibly exacerbated in Bermuda by huge growth and high inflation."

A 9% return isn't going to cut it. Ms. Cox needs to be extremely pro-active in making sure the public is fully cognisant of what we are all dealing with. And if the question isn't presented in a manner that she feels approriate she should correct the person and address it in a manner that is informative. A blanket statement of saying she will not respond is no different than Ewart's Plantation method and really hurts he credibility.

In short, I've learned more from Jake on this website than I have from the people who we pay. Hmmm... maybe Jake is Paula Cox in disguise... ;)

[Simon on 09.03.06 at 15:14]

"Because, Morgan, they're in politics for themselves. They simply couldn't give a shit about the man in the street.

This article relates to the civil service plan (PSSF) - there is a separate plan for members of parliament and senators into which each person contributes a significant % of their salary.

"Hasn't the current government prepared at least one actuarial report since coming to power?"

The fund has a full actuarial valuation every 3 years in line with the requirements of Canadian GAAP under which the Govt reports its financials.

"I used to be in DB pensions before I switched practice area and came down there... this kind of stuff can and does happen, even in much more regulated environments (I'm assuming the standards for valuation frequency and funding are a little more lax here, Canada's pretty uptight about such things)"

See comment above - the Govt reports under Canadian GAAP and has to follow the CICA pronouncements issued in respect of pension funds.
In terms of the

[Simon on 09.03.06 at 15:17]

Craig, don't get confused between the Contributory Fund into which everyone is obliged to contribute and the fund that forms the content of this article which is the PSSF and is a benefot for Government employees only.

[Simon on 09.03.06 at 15:20]

Hey Canuck - if you are who I think you are from your posts, GET BACK TO WORK!! ;)

[SmokingGun on 09.03.06 at 15:23]

Hey Canuck - I mean't to warn you about leaving your computer exposed at work.... sorry.

[Simon on 09.03.06 at 15:27]

I think you will find that what is being discussed is money owed by the pssf to government not the financial state of the fund - there's a difference

[Simon on 09.03.06 at 15:51]

It's not the computer that may have given Canuck away (I'm not event on Island at the moment), its some of the stuff he's saying - sounds just like the guy I hired recently.

[Canuck in Bermuda on 09.03.06 at 15:56]

Hi Simon

[SmokingGun on 09.03.06 at 16:23]

What gave it away?

Hi, I'm a Candian who's only been on the island for 31 days and my background is in blah blah blah....???

Hey Canuck - ever hear of a man called "Intrepid"? He was a Canadian.... ;)

[Bill Cook on 10.03.06 at 08:14]

Smoke,

Sir William was also a Bermudian I believe.

[SmokingGun on 10.03.06 at 13:05]

Bill - he probably had passports for thirty countries. ;)

Hey Simon - please don't take our Canuck away. He has some interesting insights. Maybe we'll only be hearing them at lunch hour from now on though. He does get a lunch hour, eh?