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Idb: 20% Nib Rates Needed To Avoid Pension Crisis

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

National Insurance Board (NIB) contribution rates must more than double to over 20 percent to prevent a long-term Bahamian pension crisis, it was revealed yesterday.

The warning, which will likely be greeted with dismay by workers and employers alike, was delivered in the Inter-American Development Bank's (IDB) latest Bahamas country strategy, which projected that the Government's total pension liabilities - including those owed to the civil service and public corporation workers - will ultimately grow to 160 percent of GDP.

Pointing out that all Government pension commitments are "underfunded", the IDB's 2018-2022 strategy said eliminating this deficit will require NIB contribution rates to rise from the present 9.8 percent to 20.3 percent.

"Beyond the medium term, pension liabilities for which the Government is directly responsible - including social security commitments, pensions and public entity pensions - amount to 160 percent of GDP and are underfunded," the IDB said. "Fully funding these pensions would require increasing the social security payroll tax from 9.8 percent to 20.3 per cent - a 107 per cent increase."

NIB contributions, which take the form of a payroll tax, are currently split 3.9 percent/5.9 percent between employee and employer, respectively. Should the IDB's forecast prove accurate, The Bahamas' 200,000-plus workforce will all take a hit from reduced "take home pay" and suffer a loss of disposable income, leading to reduced living standards.

And the corresponding increase in employer contributions will cut into corporate profits and cash flow, acting as a significant drag on economic growth by deterring job-creating investment and expansion. With the Government's pension liabilities projected to exceed Bahamian economic output (GDP), the issue effectively represents an "iceberg" that can sink the economy long-term.

The IDB's projection thus emphasises the need for The Bahamas to urgently enact NIB reforms, which successive governments have elected to "kick down the road" to the next administration, despite knowing the social security system's $1.6bn reserve fund will be exhausted by 2030 without fundamental change.

The 2018-2022 "country strategy" added that demographics were also working against The Bahamas, with the number of retirees projected to increase as a proportion of the population due to persons living longer. At the same time, there will be fewer working-age Bahamians to support them.

"Pension liabilities are also projected to increase faster as a percentage of GDP in the Bahamas compared to the United States by 2060, reaching 41.6 retired Bahamians per 100 workers (from a current 1:10 ratio) compared to 36.8 per 100 workers in the United States," the IDB country strategy said.

All this highlights the need for wide-ranging pension reform if the Bahamas is to escape what some have described as a 'ticking timebomb', which will add to the current fiscal crisis and further burden future generations of Bahamians with large liabilities.

Besides NIB, the International Monetary Fund's (IMF) recent Article IV report warned that the unfunded civil service pension liabilities alone are projected to hit $3.7 billion by 2030 if no corrective action is taken.

It warned that the current system - where civil servants contribute nothing to funding their retirement - is "unsustainable". The IMF said: "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$1.5 billion in 2012, and would rise to B$3.7 billion 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.

Meanwhile, the IDB warned that the Government will find it "challenging" to "pursue a pro-growth path" in the medium-term due to a combination of fiscal constraints and reduced Bahamian economic competitiveness.

Its report blamed "low total factor productivity", which measures how efficiently inputs to the production process are used, for creating "a key obstacle" to faster GDP growth that would impact more Bahamians.

Pegging the Bahamas' annual average GDP growth at a sluggish 0.53 per cent for the past 10 years, the IDB said the country's two main industries - tourism and financial services - faced growing headwinds.

"The Bahamas, a small, open archipelagic economy dependent on its services sector, has continued to experience suboptimal growth rates and rising debt levels since the global financial crisis," the IDB said.

"The tourism sector appears to be approaching maturity in its destination life cycle, while the financial sector is challenged to maintain its compliance with rigorous international regulatory standards.

"Fiscal results and national debt levels are deteriorating, and fiscal space is limited. Additionally, overstaffing and other operational losses of state-owned enterprises (SOEs) increase requirements for transfers that amount to 7 per cent of GDP or 33 per cent of annual government spending."

The IDB report said the liabilities of the Government's 35 SOE corporations and agencies equalled almost 9 per cent of GDP, a sum greater than $900 million based on the recently-revised national accounts statistics. It said 7 per cent was associated with debt incurred by their operations, while the 2 per cent balance related to unfunded pension liabilities.

The Government will likely challenge the IDB's assertion of tourism "maturity", given this week's completion of Baha Mar's full opening, and additional room inventory that has come online via the Warwick, Courtyard by Marriott, and recent renovations at the RIU and Atlantis.

However, the IDB report revealed that foreign direct investment (FDI) inflows as a proportion of GDP had almost halved over the period 2012-2016 compared to the previous five years.

"FDI inflows for 2013-2017 represented on average 2.6 per cent of GDP less than the previous average of 5 per cent of GDP for the period from 2008-2012," the country strategy said. "Pursuing a pro-growth path for the medium term will be a challenge, especially in an environment of declining fiscal space and weakened external competitiveness.

"Low total factor productivity (TFP) is a key obstacle to Bahamian prospects of achieving a higher, more inclusive growth trajectory. Negative productivity growth and declining contributions from labour and capital have reduced the economy's growth potential for the past decade, as the archipelago has seen average growth levels fall below its regional neighbours."

The IDB report said the Bahamas' TFP score had declined by around 1 per cent when measured against a group of rival Caribbean economies, with "deteriorating potential growth influenced by weak TFP growth".

It added that "targeted investment" in technological innovation by both the Bahamian private and public sectors can reverse the decline in TFP, but warned that "Government efforts at improving productivity and growth-inducing policy measures will be challenged" by structural obstacles.

Comments

Dawes 3 weeks, 3 days ago

How about a no. If this is all due to unfunded public sector liabilities then make them funded. I fund my pension and have my NIB taken out. Time to do the same to the civil servants. If they want to go on strike let them and just lock the door when they leave as it would better to be without them then having to pay the amounts recommended.

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Well_mudda_take_sic 3 weeks, 3 days ago

The IMF and IDB continue to encourage our doofus governments to borrow willy nilly to fund projects having grossly inflated costs that result in the borrowed funds being paid to the foreign corporations and special interest groups that undertake the projects and which the IMF and IDB effectively represent. These international agencies do not represent (and never have represented) the interests of our nation and the Bahamian people. Our cash strapped governments end up being squeezed into borrowing funds from the National Insurance Fund that it should be holding in trust for retirees. Furthermore, the IMF and IDB are content to standby and watch our governments (whether PLP or FNM) pad the NIB payroll with many unnecessary non-productive employees which has served to exacerbate the bleeding away of national insurance funds that should have been been set aside and properly invested in non-government related endeavours to meet the needs of retiring Bahamian workers. Now the IMF and IDB, after getting successive corrupt governments hooked on borrowing willy nilly, have the gall to tell us (the Bahamian people) that VAT needs to be increased to 15% or more and our National Insurance Fund contributions must be increased to 20% or more. Minnis and Turnquest have already fallen victim to the borrowing teat (tit) placed at their mouths as evidenced by the FNM government racking up more than one billion dollars ($1000,000,000) of additional national debt since taking office only a year ago. This is the height of lunacy and madness!

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Alex_Charles 3 weeks, 3 days ago

didn't we blow NIB money bailing out BOB?

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realitycheck242 3 weeks, 3 days ago

We blew NIB money on Bahamas Government registered stock. 41% of NIB portfolio is invested in that worthless paper..

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watcher 3 weeks, 3 days ago

This problem goes back decades - if I recall correctly, the original Cable Beach hotel development in the early 1980s was funded from NIB, and we were assured that the massive profits (LOL) would guarantee our future pensions.

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realitycheck242 3 weeks, 3 days ago

NIB has also built many other buildings for the Gov .... some of them are The Min of health complex on Delancy St, The new customs building and The Min of education building on Thompson Blvd, The sandilands Rehab new extension, The New NHI building on the east west highway, the police HG and dorms in Freeport, The new fire station in Freeport, The new Atorney Gen building on JFK and the next uncompleted building on the side of it, the list goes on.,

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Sickened 3 weeks, 3 days ago

We need to first make all new government hires contribute to their own pension plans and try our best to get the current employees to contribute at least something. Next we need to put in more tiers in the contribution system (i.e. people making over $100k should contribute more in dollar terms). For someone making $200k a year to be contributing the same amount in dollars as someone making $40k a year is beyond stupid.

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DEDDIE 3 weeks, 3 days ago

Sickened, why should I be punish because I made a success of my life.

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Porcupine 3 weeks, 3 days ago

Obviously DEDDIE you are not a Christian, or if you call yourself one, simply don't get the message. Your SUCCESS came from being born at the right time in history, to the right parents, being able to go to the right school, being born with the brains to achieve what you did achieve, being able to take advantage of all of the resources on this wonderful earth which you had absolutely nothing to do with putting here. I get tired of this stupid, selfish, utterly unacceptable thinking. Obviously, You made a "success" of your life with money, but failed to succeed in your ability to see yourself as you really are; the beneficiary of things which were put here for ALL of our usage, not just those who managed to screw their way to the top.. Your post is typical nowadays DEDDIE, but nonetheless disgusting.

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sheeprunner12 3 weeks, 3 days ago

I agree Porcupine ........ You are not judged in (eternal) LIFE by what you get - but what you give ......... and the Good Lord led by example (on the cross).

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John 3 weeks, 3 days ago

The minimum wage was raised by 40% about two years ago resulting in a corresponding increase in National Insurance a portion of which had to be paid by businesses. Many haven't yet recovered from this increase and to even suggest additional burden on businesses is like nailing up their door and digging a trench across the parking lot. NIB must seek other means of growing and preserving its revenue. Else there will be no businesses left to dig up in their pockets.

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sheeprunner12 3 weeks, 3 days ago

So sad ......... NIB has been abused by politicians ever since it was setup ...... It really became a slush fund in the past 20 years to build low cost homes, build clinics, build public buildings and prop up failing corporations ........ Now that the baby boomers who have done all that damage to NIB is retiring, the X,Y and Millennials are up the creek for their pensions......... SMT

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bogart 3 weeks, 3 days ago

THE BOARD OF DIRECTORS OF NIB MUST BE HELD ACCOUNTABLE FOR NIB MONIES ALONG WITH MANAGEMENT!!!!!!!!!!!!!!!!!!!

IF WRONGDOING IS FOUND THEN JAIL TIME. IT IS NONSENSE THAT PERSONS GETTING PAID SHOULD NOT BE ACCOUNTABLE FOR INCOMPETANCE...!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

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sheeprunner12 3 weeks, 3 days ago

And NIB Senior Management is OVERPAID (by Civil Service standards) ..... How can we justify paying those salaries when this is the poor people's contributions??????

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ThisIsOurs 3 weeks, 3 days ago

I posed a question to a friend the other day, are international agencies frustrated or delighted to be working with three people who know nothing about economics, Minnis, Turnquest and Johnson. Which would you rather, someone who challenges your proposals or someone who accepts everything you say because, you're "smart", have a "white face", "an accent", work for a "fancy titled organization" or a foreign entity? I look at the 20,000 loan that was given to the government to use an untested block chain technology to create a secure content management system and the phrase "selling ice to an Eskimo" comes up. For projects like this, if you have the budget, you "might" do some research and development, but you certainly wouldn't start using it to handle some of your more sensitive data, but someone has convinced these three men that doing just that is a great idea. For 200,000 they could have jump started 100-500 legit businesses.

I don't believe the government understands just yet that the IDB is in the business of selling loans.

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Porcupine 3 weeks, 3 days ago

And in the business of controlling resources and governments.

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sheeprunner12 3 weeks, 3 days ago

Minnis is a doctor ...... KPT went to Praire View .........and Johnson is a con artist ............. GO FIGGER

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Socrates 3 weeks, 3 days ago

all of us know that the kitty is slowly but surely being emptied. we also know that this has been known for a long time. what pees me off is they let it get so far out of control then the only remedy is drastic measures. 1% increase a year would have been easier to digest by employer and employee as oppoosed to recommendations like this, of a doubling. and if they dont act soon to some degree, it will eventually be a tripling of contributions.

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Well_mudda_take_sic 3 weeks, 2 days ago

But wait just a moment. Isn't Minnis proposing to soon significantly increase the salaries and benefits of parliamentarians?! Yep, Minnis is indeed a monster. He clearly believes it's the politicians' time, the illegal Haitian immigrants' time, the IMF/IDB/OECD's time, anyone and everything else's time, BUT CERTAINLY NOT the Bahamian people's time!!

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DDK 3 weeks ago

I guess we paid for that too.....

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screwedbahamian 3 weeks, 1 day ago

Its the " PEOPLES TIME". Hopefully the current Government will not follow the action taken in 2011 by the "Papa Doc" oh " Papa Ingraham" government that took away all of my NIB pension benefits after contributing since 1974 due to SHAMELESS CORRUPTION AND GROSS MISMANAGEMENT of the NIB Funds. As all interested Bahamians realize, NIB is the "CASH COW" for the Insolvent BOB, after BOB handed out millions of dollars in unsecured and NOW DELINQUENT loans to members of government, their families, friends and lovers. . The past governments have economically raped the Bahamian people through the SHAMELESS CORRUPT POLITICIANS, their Families, friends and many lovers. The IMF, WORLD BANK and all the other world financial agencies are telling Bahamians that they cannot entrust their financial well being to the Government, past, current or future due to CORRUPTION AND MISMANAGEMENT of NIB Contributions (Taxes), VAT or the INEVITABLE income Taxes. .

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Porcupine 3 weeks, 1 day ago

I would dispense with the idea that we'd ever get the loot back, if, I could get to see a few of them behind bars..

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TheMadHatter 3 weeks, 1 day ago

Increase VAT to 10% and earmark the addition 2.5% to fund NIB.

No point in increasing NIB because a very significant part of our society works under the table. I would identify them here, but i wouldn't want to be accused of racism :-)

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