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Ticking Timebomb Of $3.7bn Pensions

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s unfunded multi-billion dollar pension liabilities, projected to hit $3.7bn by 2030, were yesterday branded “a big time bomb waiting to go off”.

Robert Myers, the Organisation for Responsible Governance’s (ORG) principal, told Tribune Business that unfunded civil service pensions were threatening to send The Bahamas “bankrupt” unless swift corrective action was taken.

He spoke out after the International Monetary Fund (IMF), in its full Article IV report on The Bahamas, again warned that the current system - where civil servants contribute nothing to funding their retirement - is “unsustainable”.

The Washington DC-based Fund again listed civil service pensions, together with the public sector’s wage bill and loss-making state-owned enterprises (SOEs), as three key reforms that the Government must target if it is to reverse The Bahamas’ fiscal decline.

“The civil servants’ pension system is unsustainable,” the IMF warned. “Government employees draw pensions at retirement without contributing to the system while employed.

“Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled B$1.5bn in 2012, and would rise to B$3.7bn by 2030 as the population ages.”

The IMF called for reforms that involve “moving to a contributory regime in the near term, and to a defined-contribution scheme in the medium-term”. This would require civil servants to contribute a portion of their salary to funding their retirement, rather than having this financed 100 per cent by the taxpayer through the Budget - as is done currently.

Mr Myers yesterday described these unfunded pension liabilities as the Bahamas’ “single biggest problem” alongside energy costs, the near-$8 billion national debt and $300 million-plus annual deficits, and accused successive administrations of “ignoring” the looming problem.

“That’s going to be a big time bomb waiting to go off,” the ORG principal told Tribune Business of the civil service pensions. “That’s a big issue that they just keep ignoring. The pension liabilities, outside of debt reduction and deficit reduction, it’s the single biggest problem we have.

“It’ll make the losses incurred by Bahamasair pale in comparison, or any of the others. You could take ZNS and all the others, add them together, and the [pension] liabilities would still be significantly bigger. If you look at those numbers, it’s tantamount to telling you that if you don’t deal with it you’re going to go bankrupt.”

The Government has known of its growing pension crisis for some time, but successive administrations have neglected to take any corrective action, instead preferring to ‘kick the can down the road’.

Tribune Business possesses a presentation delivered by the KPMG accounting firm in 2013, the early years of the Christie administration, which provided options for how the Government could arrest a growing liability that threatens to burden future Bahamian generations.

KPMG estimated the unfunded, ‘pay-as-you-go’, civil service pension liabilities at around $1.5 billion. These liabilities are set to increase to $2.5 billion by 2022, and $4.1 billion by 2032, unless reforms are enacted.

The IMF, for its part, said in 2016: “Government pensioners (15 per cent of the public work force) receive pension payments from the Budget that, on average, stood at 1 per cent of GDP and 7.3 per cent of tax revenue per year in 1994–2014.

“The accrued pension liabilities [will total] $1.5 billion in 2021 (17.9 per cent of GDP). Pension payments and liabilities are projected to reach $230 million (1.5 per cent of GDP) and $3.7 billion (24 per cent of GDP), respectively, by 2030.”

The payments to civil service pensioners come directly out of the Government’s annual Budget, as no specific scheme has been set aside for them. The 2017-2018 Budget allocates $95 million to pension payments, and projects that this sum will be held constant for the next two fiscal years.

The IMF’s 2018 Article IV report projects a $2.2 billion increase in these unfunded liabilities over the 18 years to 2030, which translates into an average increase of $122 million per year.

“If that doesn’t wake somebody up they probably shouldn’t be in the job,” Mr Myers said yesterday. “They’ve got to get that capped. You can’t afford to lose over $100 million per year.”

The IMF previously called for civil servants to contribute 5 per cent of their salaries towards their pensions, with the Government matching this sum, converting the system into the ‘defined contribution’ scheme most commonly used worldwide.

“Pension payments have trended up to an estimated 1.1 per cent of GDP in fiscal year 2017, and population aging will increase them further,” the IMF said last year. “Staff recommended transforming the civil servants’ pension system into a contributory regime in the near term, with contributions commensurate with benefits, and with a view to move to a defined-contribution scheme in the medium term. Setting contributions at 5 per cent of wages for pensionable employees could yield revenues for 0.3 per cent of GDP.”

Comments

sheeprunner12 5 months, 1 week ago

Time for the FNM to go cold turkey ........... THIS IS WHAT THEY HAVE TO DO ...............Rescind the PSC regulations and Employment Act and CBAs etc ..............fire the whole existing public service (like they do in some US school districts) ..............and rehire with specific 3-5 years contracts, no gratuity, and less cumbersome General Orders terms and conditions and make a voluntary pension plan for ALL civil servants etc. .......... Either that OR the country will be broke in the next 15-20 years because of these stupid rules put in place back in the 1960s.

THIS IS WHAT IS CALLED FACING THE BULL ......... NO MORE KICKING THE CAN DOWN THE ROAD NOW.

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TheMadHatter 5 months, 1 week ago

As i keep saying ... cut duties a lot and increase VAT to 10%.

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DDK 5 months, 1 week ago

Import Duty would have to be cut entirely, and removed from medical service and prescription drugs, insurances and BEC fuel surcharge. Many are struggling to put food on the table as it is, even those not foolish enough to throw their salaries at the numbers slime.

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The_Oracle 5 months, 1 week ago

Rather than try to save and salvage what is left, they'd rather absolutely pillage to the bottom of the barrel leaving nothing. A well worn post colonial path. Interesting how the promise of "everything" carries more weight than the reality of ending up with nothing.

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banker 5 months, 1 week ago

I wouldn't worry about it. By 2030, most of the Bahamas will be under water due to climate change and rising ocean levels.

Don't worry, be happy

In every life we have some trouble

But when you worry you make it double

Don't worry, be happy

Erryting gern be all right. Mother Ocean will take care of us. No pension, no worry. No woman no cry. Erryting be all right.

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TalRussell 5 months, 1 week ago

Ma Comrades, Nassau Town is more under pot holes siege than economic threats.
Has anyone done the math if we walked away ALL spending funds we have to borrow to pretend to to the world how independent of a country we are? Suspend membership in CARICOM and put freeze for minimum 3 years on ALL government politicians, officials and representatives travelling the globe for so-called conferences. No more concessions to foreigners. Instead, use funds to repair the damn pot holes which number about three potholes for every driven block road, and clean up dirty, disguising Nassau town. Pass Bill in House and Red Chamber. prohibiting government borrowing another red penny for minimum 3 years.

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Sickened 5 months, 1 week ago

Give all new employees contracts where there pension is contributory and at a sensible rate (say 5%). To change the contracts of existing employees is too difficult - we need to swallow that PLP pill.

It's the easiest solution and no employee or union can gripe about it so there is no risk of losing votes.

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DDK 5 months, 1 week ago

True, but there are still soooo many civil servants, and what about the politicians and THEIR pensions?

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Honestman 5 months, 1 week ago

The "chickens are coming home to roost". The current pension fund has been depleted by corrupt politicians year after year and ministers have put their "head in the sand" hoping that the problem would become someone else's. Well guess what? It is now a problem for ALL of us. There is NO PAINLESS SOLUTION. If the Bahamas pension fund is to prevail then the country is going to have to take the lead from other countries who have encountered similar problems. The likely options for the government that has the balls to tackle the problem are:

  1. The ending of non-contributory pensions for new civil servants.
  2. The commencement of mandatory contributions for civil servants still in employment.
  3. A staggered increase in the pension age for all. For example, someone with 20 years still to work receives state pension at 67 instead of 65. 10 years working life means retirement age of 66 etc.
  4. An increase in NIB contributions for all.
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TalRussell 5 months, 1 week ago

More intriguing still is even with this Imperial red shirts government firing of government workers the compensation costs paid in wages and salaries ordinary Comrade workers, not even including pensions, continue to increase... because they have been replaced by red shirts loyalists drafted into senior management at much more generous pay levels and benefits. Easily 40% government workers are not needed at work with thousands being within the various uniformed wearing branches government. The PMO alone is fattening the paycheques with millions dollars going to workers hired no other reason than to try make PM looks all prime ministerial. I think PM Perry had likes but 5 in total warm bodies on public purse staffing entire PMO. . .

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sheeprunner12 5 months, 1 week ago

The $3 Billion includes ALL who have worked for Government since coon days ....... and those in the system now .......... The MPs pension law gives them 100% of what they make as PM, Cabinet Minister etc. ......... The small man gets 4% ........ There is no equity there.

Even if you were to cut off all new hirings from this system, it will not change the reality of the next 15-20 years. ......... and can you imagine these Government workers unions????????

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DDK 5 months, 1 week ago

The MP pension is RIDICULOUS and should be abolished. When you are finished serving why should you drain the country you claimed to want to serve? THAT should sort the sheep from the goats.

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sheeprunner12 5 months, 1 week ago

Indeed ....... the pensions of the top 10% of those who have served in Government far outstrip the regular worker who collects pittance ...... Imagine Perry Christie collecting $200,000 a year pension for putting us on the IMF junk status list ....... and the small man collects barely $200 a month?????

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screwedbahamian 5 months ago

Hopefully no other Bahamian will encounter my experience with NIB and the pension fund. After enrolling in the NIB in 1974 AT THE INCEPTION and contributing to the fund to get a pension at retirement age, THE PAPA INGRAHAM FNM GOVERNMENT in 2011, 37 years later and at retirement age TOOK that benefit away from me because of the GROSS CORRUPTION AND GROSS MISMANAGEMENT AT NIB. Bahamians should consider the NIB contributions as additional taxes and establish and manage their own retirement/pension account.

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