Bermuda: International Pension Plans In Bermuda

Last Updated: 16 January 2015
Article by Vanessa Schrum and Ashley Fife

With its enviable reputation in offshore trusts, pensions and insurance, Bermuda is an ideal jurisdiction for employers wishing to establish international pension and employee benefit plans (IPPs).

Global organisations may consider establishing Bermuda IPPs for employees who work outside their home country or the home country of both the employees and employer. Advice should be obtained in the relevant home country jurisdictions prior to establishing a Bermuda IPP.

THE ADVANTAGES OF BERMUDA IPPS MAY INCLUDE:

  • Less regulation of unregistered IPPs in Bermuda or IPPs registered under the Pension Trust Funds Act 1966 (PTFA) when compared to pension plans subject to home country regulations (for example, the Employee Retirement Income Security Act of 1974 (ERISA) in the United States and the Pension Act 1995 and Occupational Pension Schemes (Investment) Regulations 2005 in the United Kingdom).
  • Investment freedom as Bermuda IPPs may invest in a wider range of permissible investments compared to most home country pension plans. IPPs may be established to provide for self-directed investment options. Bermuda unregistered IPPs and IPPs registered under the 1966 Act are not subject to any specific investment, lending or borrowing restrictions.
  • Flexibility in the design of benefits. Unregistered IPPs or IPPs registered under the PTFA are not subject to any regulations in Bermuda regarding the nature of benefits including the payment of lump sums. If required, Bermuda IPPs rules (sometimes called the pension plan or scheme) may include limits on the payments of lump sums or other benefits if that is required to, for example, facilitate obtaining the approval of a regulator, or avoiding adverse tax consequences, in connection with a transfer of assets from a home country pension plan into the Bermuda IPP.
  • Lower administration costs overall compared to home country plans as a consequence of less complex regulation and lower administrative burden.
  • Bermuda does not impose income tax, capital gains tax or withholding tax.
  • Payments can be made from a Bermuda IPP in any currency free from exchange controls.
  • Single Plans may be used by employers to cover employees who move from one country to another. This may avoid employees who move from jurisdiction to jurisdiction having to join separate pension plans in each jurisdiction and experiencing a fragmentation of pension benefits as a result.
  • Umbrella Plans may be established for a group of different and, on occasion, unrelated employers sharing similar needs, thereby reducing the administrative costs to each employer and allowing the IPPs' investments to be pooled.
  • Unlimited duration – For trusts established on or after 1 August 2009, Bermuda trust law does not impose a perpetuity period over trusts except on trusts holding Bermuda land. This means that IPPs established in Bermuda can operate for as long as necessary without being forced to be wound up at an inconvenient time.
  • Access to Bermuda's strong insurance market to provide benefits, investments and solutions to defined benefit plan funding issues as required by IPPs.
  • Stable political and legal environment - Bermuda has a strong legal system with appeals from its Supreme Court determined by the Privy Council in the United Kingdom.
  • Regulated trustee option - Trustees who provide trustee and administration services to trusts (including IPPs) as a business are required to be licensed under the Trusts (Regulation of Trust Business) Act 2001 (TRTBA) and comply with its requirements including the code of practice and statement of principles issued under that Act. Licensed Bermuda trustees, such as Appleby Services (Bermuda) Ltd., have considerable experience acting as trustee for IPPs. There are advantages to appointing an independent licensed trustee to ensure that IPP is administered in accordance with the IPP's rules and that conflicts of interests are avoided or managed appropriately.

The IPP's trust instrument and rules set out the IPP's terms including the requirements for contributions, vesting and benefits. In practice, a Bermuda trust company may hold the IPP's assets and delegate the investment of the trust fund to an investment manager and the day to day administrative tasks to a specialist administrator. The trustee may also invest the IPP's assets and facilitate provision of benefits by entering into an insurance linked securities contract with an insurer.

PENSION TRUST FUNDS ACT 1966 (PTFA)

In Bermuda, there is no requirement for IPPs to be registered and consequently IPPs may be unregulated. International employers with IPPs that qualify for registration may consider it attractive to voluntarily register IPPs under Bermuda's PTFA. It is understood that in some home country jurisdictions, voluntary registration under the PTFA may assist the IPPs (and the benefits provided to members) to qualify for a favourable designation for tax purposes in their home country jurisdictions.

In addition, the Trusts (Regulation of Trust Business) Exemption Order 2002 provides that trustees of trusts registered under the PTFA are not required to be licensed under the TRTBA. The employer or trustee may wish to consider registration of the IPP under the PTFA if, for example, it is the intention that directors of the employer or members of the IPP be represented on the board of an unlicensed trustee of the IPP.

The PTFA provides minimum requirements with which IPPs are required to comply. Importantly, the PTFA does not:

  • preclude the availability of the above listed benefits of unregistered IPPs; or
  • impose restrictive or onerous administrative or reporting requirements.

The schedule to the PTFA requires the following matters to be covered in the IPP's rules in order for the IPP to qualify for registration:

  • The whole of the objects for which the IPP is established
  • The appointment and removal of trustees
  • The vesting in the trustees of all property belonging to the IPP
  • The types of investments permitted by the IPP
  • The making of contributions to the IPP by the employers of persons employed in the undertakings in connection with which the IPP is established
  • The contributions payable to the IPP and the rates of benefits payable or the method of calculating the benefits payable
  • The conditions upon which persons may become or may cease to be respectively, contributors to and entitled to benefits from, the IPP
  • The circumstances in which the IPP may be wound up and the manner in which the IPP's assets are applied in that event
  • The method by which the IPP's rules may be amended
  • The preparation of all statements of accounts, balance-sheets and reports for the IPP required by the PTFA
  • The supply on demand to every person who is or has been employed in an undertaking with which the IPP is established, of a copy of the rules of the IPP and of the latest statement of accounts, balance sheet and report prepared in accordance with the requirements of the PTFA

The trustees of an IPP registered under the PTFA are required to:

  • annually, prepare an audited statement of accounts and balance sheet of the IPP;
  • at least once every five years, cause an investigation and report to be made by an actuary regarding the financial condition of the IPP; and
  • provide a copy of the abovementioned documents to the Registrar-General within 12 months after the close of the period to which it relates

The PTFA provides that the abovementioned documents submitted to the Registrar-General are not available for inspection by any member of the public.

An IPP registered under the PTFA may apply to Bermuda's Minister of Finance for an assurance that the IPP will not be subject to income or capital gains taxes for a specified period if Bermuda introduces such taxes.

Bermuda IPPs are able to provide and facilitate innovative solutions for global organisations considering provision of pension funds to benefit their employees.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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