The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Pension plan administrators yesterday said they had seen a 100 per cent increase in employer inquiries over the past 12 months, describing the surge as “significant” given existing low participation levels.

Michael Anderson, RoyalFidelity Merchant Bank & Trust’s president, told Tribune Business that while not “bowled over”, the increased interest from companies either with existing plans or looking to start new ones seemed to be driven by a variety of factors.

Apart from an improving economy for some businesses, the investment bank chief suggested that the increased inquiries were also being driven by the need to seek greater investment returns and the Government’s plan to introduce pensions legislation.

Mr Anderson was backed by Larry Gibson, vice-president of Colonial Pension Services (Bahamas), who told Tribune Business he could confirm more Bahamas-based employers were thinking about their employee pension plans and making “inquiries” with his firm.

Mr Gibson, though, said this nation “mustn’t lose sight” of the fact that just 20-25 per cent of its workforce was covered by a pension plan - a participation rate that pales when set against the 80-90 per cent coverage ratios for developed nations.

Both he and Mr Anderson expressed hope that the increased interest was the start of a trend leading to a desperately-needed increase in the savings rate in Bahamian society which, in turn, would provide the long-term investment capital desperately sought by the capital markets.

“The relative numbers we’ve seen in terms of new business requests and proposals we’ve been getting is at least a 100 per cent improvement,” Mr Anderson told Tribune Business. “In the whole scheme of things we’ve not been bowled over, but it’s sustainable.”

He said RoyalFidelity had seen the increase in company proposals over the past 12 months, when compared to the same period to end-June 2013.

While the number of proposals per month had risen from one-two to two-four, something Mr Anderson acknowledged was a “small benchmark to start with”, the percentage increases remained high.

He suggested that an improved economic climate for some firms, together with low bank deposit rates and the Government’s planned legislation, which possibly might make employer-sponsored plans mandatory, had combined to spark the renewed interest.

“The combination of these three things have resulted in more employers deciding to revisit their investment options,” Mr Anderson said.

“Whether it’s the investment returns driving it or the legislation, I don’t know, but investment returns are playing a significant part, as people are looking for improved returns they can’t get at the bank.”

The investment return factor, he added, had driven similar increases in interest in RoyalFidelity’s investment fund and brokerage account products.

Mr Gibson, at Colonial Pensions, told Tribune Business that companies with “old legacy plans” were seeking to modernise them.

They were seeking to switch the funding burden from being placed 100 per cent on the company to a split with the employee, and thus move from a defined benefit to a defined contribution plan.

And there were two other “levels of interest” - employers seeking to establish staff pension plans for the first time, and others with existing defined contribution plans seeking to escape “antiquated vesting features” by establishing new ones.

“In the last year, year-and-a-half, I would say the increase in interest is significant based upon where we were,” Mr Gibson told Tribune Business.

Suggesting that the Government’s proposed pension legislation may have sparked some into action, he added: “Now companies are being proactive and seeing it as a huge benefit to their employees.”

Mr Gibson said increased public attention on pensions/retirement savings also seemed to spur employer interest, pointing to the furore that had previously surrounded the City Markets pension plan and the Central Bank’s recent attempts to restructure its own.

“We mustn’t lose sight of the fact that as a country our participation rate [in pension plans] is in the mid-20s, whereas in the modern economies, that’s at 80-90 per cent,” Mr Gibson told Tribune Business.

“More and more people are thinking about it and trying to do something about it.”

Mr Anderson, meanwhile, said that apart from new plans, companies with “informal” schemes were looking to “change tack” and formalise them prior the Government introducing legislation to regulate the industry.

And ensuring pension plans were in compliance with the proposed legislation was also likely to be a key concern for many existing employer-sponsored plans.

The Royal Fidelity president added that the Bahamas’ relatively low pension participation and long-term savings rate meant that the capital markets had been deprived of a large capital pool.

Many Bahamians still tended to rely on the National Insurance Board (NIB) for their retirement income, but Mr Anderson said private pensions were normally the “core source of capital” for the capital markets.

The Bahamas’ thin capital pool meant many companies and projects had to rely on risk-averse banks for their funding, leaving many unable to access financing - a factor that hindered this nation’s economic growth.