Pension reform is likely to involve a “gradual increase of the retirement age” as we “have to make our pension funds sustainable,” Premier David Burt said, saying that reform will “extend the life of the fund out from where it’s projected now to run out of money in 2049.”
Premier Burt, who also serves as Minister of Finance, recently sat down with Bernews for a live interview on a wide range of topics, with social insurance reform one of the matters discussed.
The Premier’s comments follow after the recently released Auditor General’s report noted that a review indicated that under the current system the pension fund could be “exhausted in 2049″.
Auditor General’s Report: Pension Fund.
The report said the Contributory Pension Fund [CPF] provides pensions, disability and death benefits, and noted that the governing legislation for the CPF does not require the Consolidated Fund to provide for any shortfall if the CPF has insufficient funds.
“Since the CPF cannot rely on the Consolidated Fund to meet its pension obligations, it is essential that the CPF is well managed,” the report said, noting the SAGE Commission “concluded that the-then current contributions were insufficient to allow the CPF to survive for the foreseeable future, under the current long-term assumptions.
“It also found that demographic projections regarding expected lifespans of pensioners [aged 65 and over] were not current and so did not reflect the increased lifespans experienced in many of the OECD countries that had resulted in retirement ages being increased over time to 68 and beyond.
“The Commission recommended that the-then current annual increase in the contribution rate of 1.75% per year above any benefit increase rate be changed to an increase in contribution rates of at least 3% above any benefit increase for a number of years. In addition, it recommended the establishment of a specific strategy to increase the retirement age for the CPF to 68 consistent with other OECD countries.
The report noted that subsequent to the SAGE Commission report, an actuarial review as at was carried out by Canadian company Morneau Shepell which presented the financial status of the CPF and provided projections of the CPF for the next 50 years to 2064.
“The review’s main findings and projection results were: The CPF was projected to increase gradually until 2021 then decline steadily until it was exhausted in 2049 under the best estimate scenario.
“The total outflow [including Old Age Pension benefits, other benefits, and administration and investment costs] were projected to exceed contribution income throughout the projection period.
“By the year 2064, contribution income would need to be about 1.25 times the current level in real terms in order to match the increased benefit outflow. This would require contributions to be increased by about 2.4% a year more than benefit increases over the next 50 years
“If the contributing population was increased by 10% from 2014 and sustained at these levels thereafter, this was expected to extend the life of the CPF for the entire projection period. For a 10% decrease in the number of contributors, the CPF would run out 6 years earlier.
“An increase in the retirement age to 67 over a 5 year period ending 2023, all else unchanged, could also result in a sustainable CPF over the projection period.”
Asked about increasing the retirement age, the Premier told Bernews, “It’s something that we will have to do. It’s recommendations that have come, and it’s a question of how we’re going to be implementing that, but what I would say is that implementation of pension reform will happen in this next Parliamentary session.
‘Gradual Increase Of The Retirement Age’
“The Ministry of Finance has a lot of data. The pension and benefits working group has been working back and forth,” the Premier said.
“So the two things that we will see in addition to the cost of living measure, which I mentioned, is that we will see the issue of pension reform, with the issue with tax reform, and also the issue of social insurance reform, which will mean a gradual increase of the retirement age, both for the public service and also for receipt of social insurance benefits.”
“It will be phased in, it will be something that will be subject to consultation,” the Premier added.
’We Have To Make Our Pension Funds Sustainable’
“At the end of the day, the facts are that we have to make our pension funds sustainable,” Premier Burt said. “And there’s only two ways to do that; increase the amount of money that goes into the fund or decrease the amount of money that comes out of the fund.
“There are no other magic tricks with that,” Premier Burt added. “So it either needs to be one, the other, or a combination of both. And so what we will do on the social insurance side, is that we will find a way to increase contributions, which will not impact the lowest earners.
“We will find a way to make sure that we can continue to pay benefits, but we’re going to have to reduce the amount of benefits that are paid and the way to do that is by gradually increasing the retirement age, and with that we’ll extend the life of the fund out from where it’s projected now to run out of money in 2049.
Best Way To Fix Issue Is ‘Economic Growth’
“Those are the issues of which we have to deal with in our economy,” Premier Burt added, “But I think that one of the best fixes to those particular issues is to make sure that we have economic growth that creates additional jobs in the economy.”
Video excerpt showing the Premier discussing pension reform:
The video above was extracted from the full interview, in which Premier Burt discussed a wide range of topics including the Government’s finances, employment numbers, the retirement age, a living wage, sex offender registry, Grand Atlantic, the Shelly Bay proposal and more.
We will post additional excerpts from the interview, and to watch the full 36-minute live interview replay, please click here. and if you want to listen ‘on the go’, you can also access an audio-only version of the full interview in the podcast section of the Bernews app.
Read More About
Category: All, News, Politics, Videos