The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government has again been urged to prioritise legislation for the $1 billion-plus private pension industry, with financial managers warning the lack of oversight is “a disaster in the making”.

Larry Gibson, vice-president of Colonial Pension Services (Bahamas), told Tribune Business that the sector would continue to see cases where there was “a lack of accountability” in the absence of statutory oversight.

He warned that its sheer size, and importance, meant the Bahamian pension fund industry was too important for policymakers to ignore.

Mr Gibson was backed by Kenwood Kerr, Providence Advisors’ chief executive, who said statutory oversight for existing plans was the “absolute minimum” requirement for protecting workers’ retirement assets.

He called for all pension industry players, such as administrators, fund managers and trustees, to pass “a fit and proper person test” as a means to prevent the mismanagement of assets.

Both men were speaking out following multiple Tribune Business revelations on the ongoing City Markets pension debacle, with beneficiaries still waiting to receive their entitlements more than four years after the company’s collapse.

L Sydney Saunders, an accountant hired by a group of City Markets pension fund beneficiaries, earlier this year warned that “numerous suspicious transactions” appeared to have occurred with the plan’s assets.

He did not identify these “transactions”, but said further scrutiny and examination was required.

However, exhibits to other documents filed with the Supreme Court show that a $20,000 cheque, drawn on the City Markets pension plan on February 22, 2013, was used to pay Bahamas Automotive Services for the purchase of a 2009 Hyundai van. The licensing and insurance costs for the van were also paid by the pension fund.

And a $176,000 cheque was drawn on March 19, 2013, to pay Trans-Island Traders, the last 78 per cent majority owner of City Markets, “closing fees for the sale of vacant land”. The land in question is not identified.

“What it speaks to fundamentally is that we need pensions legislation,” Mr Kerr told Tribune Business. “We need to have some kind of legislation to govern, oversee and police existing plans in the country.

“It’s required at an absolute minimum. We need legislation to govern existing pension funds in the country, and service providers.

“There must be some rules and criteria by which service providers qualify themselves, offer their services and are regulated and monitored, so they’re always fit and proper.”

Mr Gibson added: “Until we get legislation in place, we’re going to continue to be challenged with cases of dubious accountability, if not the complete lack of accountability.

“It’s not until we seemingly have more cases and something bad happens that it gets on the politicians’ agenda.

“It’s like every couple of years the door cracks a little bit, and people get on their soapbox and talk about it, but at the end of the day nothing gets done and that’s unfair to the hardworking people of this nation.”

The Christie administration attempted to initiate pension industry regulation via a Bill brought to the House of Assembly in 2013. Although it made it to a second reading and full debate, the Bill has never progressed into law.

Mr Gibson recalled that the Bill became “bogged down”, making it to the House committee stage where “it died”. Mr Kerr, meanwhile, described the legislation as “probably gathering dust”.

He suggested that provisions making it mandatory for all employers to provide pensions became controversial, as the Bill was seen as effectively imposing another “tax obligation” on the private sector.

Suggesting that ‘mandatory pensions’ be treated as a separate issue from regulating the sector, Mr Kerr said existing private plans needed to be properly structured.

He emphasised that they needed to be completely separate from their company sponsors/founders, to prevent retirement assets from being used for operating capital.

And the trustees, fund managers and administrators also needed to be completely separate from the plan sponsors.

“It can’t be done in-house,” Mr Kerr told Tribune Business. “It needs qualified service providers or investment managers so you create an arm’s length, totally independent environment with rules, policies and procedures in place so people can be held accountable.”

The Providence Advisors chief suggested that the industry could be regulated through a new, separate Pensions Commission or via the Securities Commission.

He suggested that the latter would likely be more efficient and cost effective, given that it already regulated many pension industry players through other legislation.

Mr Gibson, meanwhile, said the private pension industry’s growing size and assets under management made it impossible to ignore from a regulatory standpoint.

“Look at it this way,” he told Tribune Business. “You look at pension funds as a percentage of GDP. They’re growing continuously.

“Can you imagine the banking sector without regulation, the insurance sector without regulation? It’s enormous; way over $1 billion.

“I suspect it will be somewhere north of $1.5 billion in private pensions. We’re talking big numbers; very large numbers indeed.”

Mr Gibson said the protection of Bahamian retirement assets was critical, especially when combined with this nation’s relatively low savings rate and unsustainable debt/consumption habits.

“You’re looking at a large proportion of your population going into retirement without a pension,” he told Tribune Business. “At best, only 40 per cent are covered by a plan; 60 per cent are out there.

“You combine that with the credit structure in this country, where the average debt ratio is unsustainable, and the poor financial habits most people are carrying, and you can see it’s a disaster in the making.

“High unemployment, low pension coverage and a nil savings rate. It’s not a pretty picture.”

With a general election imminent, Mr Gibson said the issue of pensions - and their regulation - needed to be “put on the front table”.

“What are your plans to support the long-term financial stability of the country, and savings and retirees?” he asked of the major political parties.

“If you look at the region, everybody is doing something. Everybody has something. You look at smaller countries; Turks & Caicos doesn’t have direct pension ordinance, but it’s in insurance and other substantive legislation.

“It may not be adequately or substantively covered, but at least they’re doing something. Maybe doing nothing’s our preferred position. You have to wonder.”