Office of the Auditor General Hemisphere House 9 Church Street Hamilton HM 11, Bermuda Tel: (441)296-3148 Fax: (441)295-3849 Email: auditbda@gov.bm AUDITOR'S REPORT To the Minister of Finance I have audited the statement of net assets available for benefits of the Ministers and Members of the Legislature Pensions Fund as at March 31, 2001 and the statement of changes in net assets available for benefits for the year then ended. These financial statements are the responsibility of the Fund's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in Bermuda and Canada. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In my opinion, these financial statements present fairly, in all material respects, the financial position of the Ministers and Members of the Legislature Pensions Fund as at March 31, 2001 and the changes in its net assets available for benefits for the year then ended in accordance with accounting principles generally accepted in Bermuda and Canada. LaTfy-T. Dennis, C.A. Auditor General Hamilton, Bermuda September 19, 2001 125 MINISTERS AND MEMBERS OF THE LEGISLATURE PENSIONS FUND STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS MARCH 31, 2001 2001 2000 $ $ 4,724,709 4,004,912 14,750 18,983 7,250 18,983 33,733 26,233 4,690,976 3,978,679 ASSETS Due from the Consolidated Fund of the Government of Bermuda (note 3) LIABILITIES Accounts payable and accrued liabilities Refunds payable NET ASSETS AVAILABLE FOR BENEFITS The accompanying notes are an integral part of these financial statements. 126 MINISTERS AND MEMBERS OF THE LEGISLATURE PENSIONS FUND STATEMENT OF CHANGES PN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED MARCH 31, 2001 2001 2000 $ $ INCREASE IN ASSETS Investment income Interest Return of refund 293,053 76,676 251,570 369,729 251,570 279,016 279,016 272,601 272,601 558,032 545,202 927,761 796,772 Pension benefits Administrative expenses Actuarial fees Audit fees 189,064 11,900 7,500 7,000 190,314 22,849 Total decrease in assets 215,464 220,163 NET FNCREASE FOR THE YEAR 712,297 576,609 NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF YEAR 3,978,679 3,402,070 NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR 4,690,976 3,978,679 Contributions Members and officers Government Total increase in assets DECREASE IN ASSETS 7,000 The accompanying notes are an integral part of these financial statements. 127 MINISTERS AND MEMBERS OF THE LEGISLATURE PENSIONS FUND NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2001 DESCRIPTION The Ministers and Members of the Legislature Pensions Fund ("the Fund") was established on April 1, 1988 by the Ministers and Members of the Legislature (Salaries and Pensions) Act, 1975 and subsequent amendments (1975 Act). The purpose of the Fund is to provide retirement pensions for the ministers, members and officers of the Legislature of Bermuda in accordance with the 1975 Act. The Fund derives its revenue from contributions received from contributors, the Government of Bermuda, and investment income. Assets of the Fund are invested in accordance with the provisions of the Public Funds Act 1954. The following information represents a summary of the provisions of the 1975 Act. Readers are referred to the aforementioned legislation for more detailed information. (a) General The 1975 Act established a contributory, defined benefit pension scheme covering ministers, members and officers of the Legislature. Contributions received represent 25% of salary paid. The total contribution is paid equally by the contributors and the Government. Pensions payable are pro rated according to the contributors' length of service before and after April 1, 1988. The portion payable in respect of service before April 1, 1988 is charged to the Consolidated Fund and the portion payable in respect of service on or after April 1, 1988 is charged to the Fund. (b) Service pensions A service pension is generally available to contributors who have reached age 60 and have served for at least 8 years or contributors who have reached age 55 with service of 20 years or more. The rate of pension is 3/1000 of the monthly salary payable to a minister, member or officer, on the date on which the contributor becomes entitled to receive a pension, for each month of service rendered up to a maximum of 25 years. Significant revisions to pensions entitlement were made with the 1988 amendment to the 1975 Act. On August 23, 1999 the Ministers and Members of the Legislature (Salaries and Pension) Amendment Act 1999 was enacted. The amendment allowed certain members to choose to receive a deferred pension. The legislation was deemed to have come into force June 9, 1976. (c) Survivors' pensions A survivor pension is payable to a spouse or dependent child(ren) of a contributor who, at the date of death, has a minimum of eight years credited service. The pension payable to the spouse is one half of the pension otherwise payable to the contributor. Any children under the age of 18 will receive a pension of 10%, to a maximum of 4 children. The child's pension may be extended to age 25 if they remain in full-time education. 128 MINISTERS AND MEMBERS OF THE LEGISLATURE PENSIONS FUND NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2001 1. DESCRIPTION (continued) (d) Refunds of contributions Contributors who retired prior to April 1, 1988 or who held an office on April 1, 1988 are entitled to a refund of their contributions, plus interest at 6% if at the latter date of their sixtieth birthday or the day when they cease to be a member they are not eligible to receive a pension under the 1975 Act. Contributors who served as members only on April 1, 1988 or who became members after that date are entitled to a refund of their contributions plus interest at 6% if, at any time, they cease to be members under circumstances which do not entitle them to a pension under the 1975 Act. (e) Pension increases The Pensions (Increase) Act 1972, allows for an increase in pension benefits on a biennial basis. The increase, if any, will be calculated with reference to changes in the relevant Consumer Price Index during the proceeding two year period. (f) Funding policy The triennial valuations performed by the actuary examines the adequacy of contributions to fund future benefits. The actuarial valuation, dated March 31, 1997, reported that the 12.5% member contribution plus Government's matching contribution was sufficient to fund benefits in respect of service on or after April 1, 1988. There is currently no funding policy for benefits in respect of pre-April 1988 service. 2. ACCOUNTING POLICIES The financial statements have been prepared in accordance with accounting principles generally accepted in Bermuda and Canada and include the following significant accounting policies: (a) Basis of Presentation These financial statements are prepared on the going concern basis and present the aggregate financial position of the Fund as a separate financial reporting entity, independent of the Government. The financial statements show only the net assets available for benefits to be paid out of the Fund and do not purport to show the adequacy of the Fund to meet future pension obligations. Section 8(5) of the 1975 Act, as amended, provides that if at any time the Fund is insufficient to meet the payments chargeable against it, the deficiency shall be paid from the Consolidated Fund. 129 MINISTERS AND MEMBERS OF THE LEGISLATURE PENSIONS FUND NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2001 2. ACCOUNTING POLICIES (continued) (b) Use of Estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues earned and expenses incurred during the year. Actual results could differ from these estimates. 3 DUE FROM THE CONSOLIDATED FUND OF THE GOVERNMENT OF BERMUDA . The balance due from the Consolidated Fund of the Government of Bermuda represents the net position of contributions received and expenses paid by the Government on behalf of the Fund. The rate of interest accruing on the balance is 7% per annum. 4. RELATED PARTY TRANSACTIONS Administrative expenses represent general administration costs incurred by the AccountantGeneral's Department on behalf of the Fund and include pro-rated salaries, departmental overhead and other operating and administration costs. 5. OBLIGATIONS FOR PENSION BENEFITS The present value of accrued pension benefits was determined using the projected benefit method pro rated on services and administrator's best estimate assumptions. An actuarial valuation was performed as of March 31, 2001 by PricewaterhouseCoopers. The prior valuation was performed by Abbott Associates as at March 31,1997. 130 — • — — — — ^ — — — — - ^ — — — • MINISTERS AND MEMBERS OF THE LEGISLATURE PENSIONS FUND NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2001 5. OBLIGATIONS FOR PENSION BENEFITS (continued) The actuarial present value of benefits as at March 31, 2001, and the principal components of changes in actuarial present values during the year, were as follows: 2001 1997 $ $ Actuarial present value of accrued pension benefits Net assets available for benefits 8,450,800 4,691,000 3,810,100 3,079,800 Deficiency of net assets over present value of accrued pension benefits 3,759,800 730,300 The actuarial present value of accrued pension benefit in respect of service prior to April 1, 1988 is $8,550,100 (1997 - $9,845,600). The current period benefit cost for pre-April 1, 1988 service is charged as an expense of the Consolidated Fund. Actuarial valuations are based on a number of assumptions about future events, such as inflation rates, interest rates, wage and salary increases, employee turnover and mortality. The assumptions used reflect Government's best estimates of expected long-term rates and short-term forecasts. The most significant assumptions are that the average investment return will be greater than the average rate of salary increase by approximately 3% (prior valuation 2%) and the cost of living increase will average 3% (prior valuation - 4%) per annum. The 1983 Group Annuity Mortality was used for the mortality assumption (prior valuation - 1979 UK PA (90) table). A summary of the significant long-term actuarial assumptions used in the valuation were: 2001 7% 4% 3% Investment rate of return Salary escalation rate Cost of living increase 1997 7% 5% 4% The actuarial value of net assets available for benefits has been determined using market values. 131