This advisory summarises key changes to Bermuda's national pension scheme. The National Pension Scheme (Occupational Pension) Amendment Act 2019 (the "Amendment Act"), which amends the National Pension Scheme (Occupational Pension) Act 1998 (the "Act"), effects substantive changes to Bermuda's National Pension Scheme. The Amendment Act makes consequential amendments to the National Pension Scheme (General) Regulations 1999 (the "General Regulations") and the National Pension Scheme (Financial Hardship) Regulations 2010 (the "Financial Hardship Regulations"), (together, the "Regulations").
The Amendment Act came into force on 30 December 2019, with some amendments effective immediately, and others coming into force on 2 January 2020 and 2 March 2020. The Amendment Act increases the requirements under existing provisions and introduces new provisions which affect administrators, employers and employees. It also provides the Pension Commission (the "Commission") with wider powers over the administration of pension plans, pension funds and local retirement products.
Key changes to the Act and Regulations that affect administrators and employers are:
Scope: Enrolment in a registered pension plan is no longer limited to Bermudians or the spouse of a Bermudian. It is now being extended to any person who is employed by an employer, but does not include a person who has been granted permission under the Bermuda Immigration and Protection Act 1956 (the "Immigration Act") to engage in gainful occupation in Bermuda unless that person has been granted such permission for an aggregate period exceeding 12 months. However, there is a carve-out whereby employers do not need to provide a pension plan in respect of employment or service in Bermuda by a citizen of the United States of America, who has permission in accordance with the Immigration Act to seek gainful occupation in Bermuda and who participate in a pension plan qualified under what is commonly known as section 401(k) of the United States Internal Revenue Code. Where an employer has established a section 401(k) pension plan in respect of an employee, the employer may register the plan with the Commission.
Approval of trustee: An application by a person for approval as a trustee must be made to the Commission. Trustees must now meet the 'Minimum Criteria' that requires every person approved as a trustee under the Act, to be 'fit and proper' and perform their duties as a trustee with 'integrity and skill'. The Commission may refuse to approve an application or revoke the approval of a trustee if the applicant has contravened a provision of the Act or the trustee has not satisfied or contravened the Minimum Criteria.
Record-keeping: Every employer is now required to maintain records with respect to its pension plan and each of its employees and it is now required that the records must be kept by the employer for a minimum of seven years following the date of termination of the employee. Records that are stored electronically must be capable of being reproduced in legible form.
Vesting: The vesting period has been reduced from two years to one year and the Commission has the ability to approve a vesting period, which is other than one year, where the pension plan is a multi-employer pension plan.
Penalties: The Commission may now impose civil penalties against employers and administrators for non-compliance with the Act and the Regulations. A fine not exceeding $25,000 can be enforced against an administrator, where the administrator fails to submit to the Commission the annual information report, the financial statements, the three year fiscal report prepared by an actuary or information in writing concerning the funding of a pension plan. Where there is any other contravention of the Act or General Regulations, the Commission can impose a civil penalty not exceeding $50,000.
Access to lump sum: Retired persons may now receive a lump sum refund of up to 25% of their account balance in the case of a defined contribution pension plan or a local retirement product or 25% of the commuted benefits, if the case of a pension plan that provides defined benefits. A beneficiary is now entitled to receive a lump sum payment equal to the member's contributions, where a member dies before completing only one year of membership in a pension plan.
The Amendment Act provides the Commission with the power to issue Guidance Notes to employers, administrators and other persons dealing with a pension plan, pension fund or local retirement product, for the purposes of promoting best practice and compliance with the Act and Regulations. We anticipate that these Guidance Notes will be issued following in the first half of 2020.
This advisory provides a brief summary of key changes. The impact of the amendments need to be considered on a case by-case basis.