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Multi-Billion Pension Deficit 'High Priority, Not Top' For Govt

Deputy Prime Minister Peter Turnquest.

Deputy Prime Minister Peter Turnquest.

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The deputy prime minister says resolving the government's own looming multi-billion dollar pension crisis "is certainly a high priority but not top of the list".

KP Turnquest, in a recent interview with Tribune Business, said the Minnis administration was in the process of hiring consultants who would determine "the way forward" for reforming public sector pensions and how to tackle existing liabilities.

"We have gone out for a request for proposal on a project to look at this whole issue of pensions again," he disclosed. "That should be back shortly and, once we've done the evaluation on this, we will finalise that and come back with a definitive position on the way forward to reforming public pensions in the future and how to deal with existing liabilities."

Mr Turnquest added: "While it's not top of the list, it's certainly a high priority." He was speaking after a Central Bank survey again highlighted The Bahamas' looming retirement crisis given that just over 25 percent of the workforce are covered at present by an existing employer-sponsored plan.

And that is just the private sector. Michael Anderson, president of Fidelity Merchant Bank & Trust, told Tribune Business that the government had its own "massive problems" when it came to pensions and retirement funding given that no organised scheme currently exists for the civil service.

The International Monetary Fund (IMF) has for several years, with increasing urgency, been prodding the Government to address the multi-billion dollar liability it and Bahamian taxpayers face as a result of unfunded civil service pension liabilities.

Previous research by the KPMG accounting firm suggests this unfunded liability is now likely to be approaching $2bn, with the 2018-2019 Budget showing that the Government is currently allocating between $95m to $100m each year to finance civil service pensions during the three fiscal years to 2020-2021.

The IMF, in its Article IV report last year, agreed that the current system - where civil servants contribute nothing to funding their retirement - is "unsustainable". It added: "Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled $1.5bn in 2012, and would rise to $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.

Tribune Business also 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 then at around $1.5bn. These liabilities were set to increase to $2.5bn by 2022, and $4.1bn 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."

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

The focus on the civil service pensions also fails to include the multi-million dollar deficits in existing schemes at state-owned enterprises such as Bahamas Power & Light (BPL) and the Water & Sewerage Corporations, where staff pay little to nothing and the contribution burden falls entirely on the loss-making companies.

Comments

DDK 2 months ago

Why do we pay all these elected officials and civil servants and then go hire private consultants and put more burden on the tax payers? This practice is more than ridiculous. If those in charge do not know what they are doing or how to do it they should all resign. Don't they realize that this is part of the problem of gross over-expenditure or do they simply not care?

The very fact that civil servants do not contribute to their pensions contributes to their attitude of self-entitlement, but little else and is another great part of the problem of lack of funding and lack of performance. Don't need to hire any so-called 'consultants' to tell them that. It is also grossly unfair to the rest of the population that actually have to work for a living.

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Well_mudda_take_sic 2 months ago

KP Turnquest, in a recent interview with Tribune Business, said the Minnis administration was in the process of hiring consultants who would determine "the way forward" for reforming public sector pensions and how to tackle existing liabilities.

This is what every corrupt government has done for decades.....hire consultants to re-re-re-re-re-re-re-re-study the problem as if somehow that will magically make it go away. Turnquest is a corrupt and incompetent arsehole who will not even at least arrange for the termination of the existing overly-generous defined pension benefit plans that are already de facto bankrupt without wrongful ongoing support from government/taxpayers. Terminating the unsustainable bankrupt civil servant defined benefit pension plans would at least freeze the liability for unfunded pension obligations todate, and allow for settlement discussions for an amount significantly less than100 cents on the dollar. Once these plans have been terminated, they should be repaced with defined contribution pension plans which would require no wrongful government (taxpayer) support going forward.

Get off of your duff Turnquest and start doing what's demanded of your cabinet post. And if you're not up to the task or it is just too great for you to do, then resign and move aside. You're not any where near as indispensable as you like to think. You seem to have forgotten that being a good accountant is much more than just being a bean counter.

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sheeprunner12 2 months ago

This Government pension issue did not just happen overnight ........ the modern civil service has been in place since 1964 ....... But, back then, salaries were so low that it was not a problem ...... Today with the ballooning cost of living and the ascent of Hubert Ingraham in 1992, has led to Unions negotiating CBAs with SOEs and Ministries that prey on the vulnerable short-sighted politicians .......... Five year party-rule cycles have only exacerbated this since 2002.

The CBA bubble is about to burst ............. and politicians are scared of the inevitable (2030).

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