Recent amendments to Bermuda’s National Pension Scheme (Occupational Pensions) Act 1998 and National Pension Scheme (General) Regulations 1999 have overhauled the way that private sector pension plans are registered, administered, and funded. The amendments are embodied in the National Pension Scheme (Occupational Pensions) Amendment Act 2019 and National Pension Scheme (Occupational Pensions) Temporary Amendment Act 2019.
Until now, employers have only been required to provide pension plans for eligible employees over the age of 23 and under retirement age who are Bermudian or spouses of Bermudians. The Act requires contributions of 10 percent of the employee’s pensionable earnings (the employee and employer each contributing 5 percent respectively).
“Pensionable earnings” include wages, salary, leave pay, fees, commissions, bonuses, and profit share payments up to a maximum of $200,000 annually. As of January 1, 2020, contributions must be paid on all bonuses/profit share payments, even if they total less than 10 percent of the employee’s base salary.
Effective March 2, 2020, employers are required to provide pension plans for all eligible employees regardless of immigration status. (Excluded from this requirement are (i) employees holding a work permit for a period of less than 12 aggregate months, and (ii) U.S. citizen work permit holders who participate in a U.S. tax-qualified 401(k) retirement plan.) Self-employed expatriates and Permanent Resident Certificate (PRC) holders are also required to register for pension plans. Employers may follow a transitional contribution rate schedule for newly affected employees over the next 5 years (i.e., 1 percent matching contributions in the first year, after which the match increases by 1 percent each year up to 5 percent in the fifth year).
Other significant changes include:
- Statutory vesting periods for most pensions will be reduced from two years to one year (March 2, 2020).
- Pre-retirement hardship withdrawals have been expanded to include eligible funeral expenses (January 2, 2020).
- Retirees reaching normal retirement age may apply to withdraw a cash amount of up to 25 percent of their account balance (effective date to be determined).
- Small pension relief: Retirees may withdraw the value of their pension in a lump sum if it is valued at $50,000 or less (January 2, 2020).
- Employers that are in arrears of their monthly contributions for 30 days are liable to pay interest on the unpaid contributions (on top of the unpaid contributions) at the prescribed rate (March 2, 2020).
- Employers must keep comprehensive records, including dates and amounts of employee and employer contributions for at least seven years following the date of termination of each employee (March 2, 2020).
- All trustees must be approved by the Pension Commission based on minimum criteria. The Pension Commission can refuse if an applicant is not deemed fit and proper or lacks the integrity and skill for the role (March 2, 2020).
- Where a person is liable to a criminal conviction under the act but has not been charged, the Pension Commission may impose a civil penalty of up to U.S. $25,000 in the case of a person winding up a pension plan who fails to provide a report, and up to U.S. $50,000 for any other breach of the Act (January 2, 2020).
- As of January 1, 2020, employees and employers have the ability to suspend contributions to their pension plan by up to 2 percent with the written consent of the other party, between January 1, 2020, and December 31, 2021, thus reducing each of their respective contributions from 5 percent to 3 percent. This provision does not apply to new member expatriates and PRC holders who fall under the transitional contribution rate schedule. The aim of this provision is to relieve financial hardship and stimulate Bermuda’s economy, marked by an ageing and shrinking population.
Written by Juliana M. Snelling and Gambrill Robinson of Canterbury Law Limited and Roger James of Ogletree Deakins
© 2020 Canterbury Law Limited and Ogletree, Deakins, Nash, Smoak and Stewart, P.C.