By NEIL HARTNELL
Tribune Business Editor
The Bahamas' retirement funding crisis must be given "focus", the deputy prime minister agreed yesterday, given the ever-increasing drain it threatens to impose on the nation's resources.
KP Turnquest, responding after the Central Bank's latest private pension survey reaffirmed that almost three-quarters of Bahamian workers are not covered by any formal plan, said this finding coupled with the low national savings rate meant that government-led action was imperative.
With the National Insurance Board (NIB) becoming "more and more challenged", he warned that future Bahamian retirees cannot rely on the state to maintain their living standards and incomes after leaving the workforce.
This means it will become increasingly important for all Bahamians to make provision for their own retirement, but the failure by many to do so has resulted in frequent calls from pension industry players for participation in such schemes to be mandated by legislation.
Mr Turnquest yesterday cautioned, though, that any legal reforms that made it mandatory for Bahamians to participate in pension schemes - either employer-sponsored or their own individual plans - would require extensive public consultation and research before becoming law.
He also did not commit to a timeline for addressing The Bahamas' savings and retirement woes, which many observers have described as a "ticking timebomb" for a society that traditionally directs its resources to consumption spending as opposed to long-term savings.
"Given the environment it's an area we're going to have to bring some kind of focus to given that the level of savings in the country has been relatively subdued," Mr Turnquest told Tribune Business of the low private pension participation rate.
"The weight being put on national resources and what's happening with NIB means it is a consideration that we're going to have to consider at some point. As the population ages this becomes more and more of a concern, and the NIB programme as currently structured is going to become more and more challenged, so the need for pensions and private savings will become more critical as we go forward.
"Thus far we've been able to provide assistance through the Old Age Pension facility and NIB, but as the age and demographics shift, this is going to become more and more of a weight, so looking at alternatives is the smart thing to do."
The Central Bank's survey of private pensions for 2016 and 2017 revealed that NIB benefits, together with personal savings linked to insurance annuities and private schemes, represent the major sources of Bahamian retirement funding.
However, actuarial projections that NIB's $1.6bn reserve fund will be exhausted come 2029 means that comprehensive reform is required within the next few years to rescue the nation's social security scheme, potentially impacting benefits to retirees as indicated by Mr Turnquest.
With just 25.7 percent, or 52,363 out of a 200,000-plus workforce, covered by a formal retirement plan, pension fund managers and administrators have repeatedly called for legislative intervention to help head-off the looming burden presented by Bahamians who lack sufficient income to cover their golden years.
Mr Turnquest, though, likely mindful of the financial impact to small and medium-sized businesses (SMEs) if they were forced to provide pension plans for their employees, said careful study was needed before making such initiatives mandatory.
"It's one that has to be given a lot of thought and research if you're going to talk about some kind of mandatory pension or savings initiative," he told Tribune Business.
"Whenever we talk about any kind of mandatory structure it requires a whole lot of consultation with the public. It's not a short-term thing but the conversation needs to be had."
The absence of any timeline for government action will likely disappoint pension industry operators. Michael Anderson, RoyalFidelity Merchant Bank & Trust's president, on Thursday had called for The Bahamas to "make inroads" on bringing a 22-year effort to introduce pension legislation to a speedy conclusion.
Suggesting that it focus on regulating existing schemes and industry operators before addressing whether to make pensions mandatory, Mr Anderson warned that The Bahamas was storing up "future trouble" for itself unless it took immediate action to alleviate the growing retirement crisis.
The Central Bank survey, too, also pushed in this direction on the basis that the 35 percent response rate to its survey, with just 49 out of 140 existing and potential pension plan sponsors responding, "underscores the importance of concluding and activating the regulatory framework for private schemes".
It added: "Currently, the draft Bill for pension fund regulation - the Employees' Pension Fund Protection Act 2012 - is still pending approval prior to implementation. The Bill would permit more comprehensive monitoring of activities, especially as it relates to smaller plans.
"As contemplated, the regulatory framework for private pension plans would also reinforce mandates for prudent management practices within private schemes."