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INSIGHT: NIB’s woes sat on Brave’s desk in 2001 - what’s he going to do now the crisis is actually here?

PRIME Minister Philip “Brave” Davis. (File photo)

PRIME Minister Philip “Brave” Davis. (File photo)

By MALCOLM STRACHAN

“WE’VE clearly run out of time.”

When Matt Aubry, the executive director of the Organisation for Responsible Governance (ORG), gave his assessment of the state of the National Insurance Board’s funds, he was right – but he was only reflecting what everyone else knows.

His words may be sobering, but it’s a bit too late for sobriety after years of spending money like a drunken sailor.

In the past week, there’s been a lot of talk about how much NIB lost from its funds through the effects of Hurricane Dorian and the COVID-19 pandemic, but that’s a distraction – the fund was in trouble even without those.

We’ve been paying out from the fund more than we’ve been taking in since 2016. COVID and Dorian just came along to make the problem worse – but the problem was there all along.

Think of it this way – you have a savings account, but you’ve been spending more than your salary for a while, and that amount is running low. Then suddenly your car dies and you need to buy a new one. It’s not that one big expense that was the problem, it was that you were living beyond your means so you weren’t prepared when that expense came along.

This isn’t a criticism of one political side or another – this falls on the shoulders of both sides equally. NIB’s problems have existed through successive administrations.

Although, there is something of a feeling of irony that a previous actuarial report, the seventh, completed in 2001, warning that reserves were “projected to become exhausted” in 2029, landed on the desk of the then chairman of NIB, Philip “Brave” Davis. That date is now projected to be 2028, and the consequences of two decades of nothing being done now sit on the Prime Minister’s desk.

How seriously is the government taking it? Well, there’s no sound of any decision being made about what to do – while the press secretary, Clint Watson, is only adding to the confusion.

He said the government was putting a “significant” amount of money into NIB to save the fund from depletion, while saying: “The fund will not go depleted. The government will look after the National Insurance Board fund. What the government is doing is being creative and finding additional ways to fund the National Insurance Board without just taxing the Bahamian people, which is the lazy way out.”

Bombastic as he may sound, the only trouble is – the money’s not there. There’s nothing in the Budget for this “significant” amount of money the government is putting into NIB. So essentially Mr Watson seems to have announced a secret plan to fight NIB bankruptcy, which isn’t funded, hasn’t been made public, and which has been roundly ignored in comments by officials since. If you think that sounds like he was talking nonsense, you’re not alone.

The trouble is, in the absence of strong, decisive leadership on the issue, Mr Watson’s comments are about as close to taking a stand on the issue as we’ve got.

Myles Laroda, the Minister of State in the Prime Minister’s Office with responsibility for NIB, is playing his part. He’s been ringing the warning bell for a while now about the state of the NIB fund, saying an increase in contributions was going to be necessary.

Last week, he warned again that demographics aren’t helping – with people living longer and birth rates falling. A longer lifespan is a good thing, of course, but it does mean years of extra expense in pension costs and so on. The falling birth rate means we have an older population on average – put simply, that means more retired people drawing from the pension pot, and fewer working people putting contributions back in.

Shouldn’t the funds those older people put in throughout their lives still be there ready to be drawn upon? Well, yes, but that’s not generally how such funds work. Those funds have been invested over the years, or used to cover the costs of supporting previous generations since the start-up of the fund. There are plenty of questions over the wisdom of some of those investments down the years, of course, and over how some of those funds were used.

We have now apparently reached the stage where we can’t even afford to invest, with Mr Laroda saying we are now in “disinvestment” mode. We’re selling up the investments we have to cover the costs we are having to meet. No prizes for guessing what that’s doing to the return value of those investments.

All around, voices are calling for something to be done.

Larry Gibson, the chief operating officer of CG Atlantic Pensions, who knows a thing or two about such funds, said of the latest actuarial report, “If this is not a clarion call to action, then what is?”

Mr Laroda said: “Immediate action is needed to restore short-term sustainability.”

Mr Aubry said: “I don’t think there’s a magical solution. I don’t think there’s a lazy solution. I don’t think there’s anything that we’re going to come up with magically that will take the burden off, but we’ve clearly run out of time to deal with this in a way that doesn’t put people in a state of crisis projection.”

There are solutions, but it all boils down to a fairly simple equation. Bring in more money, or stop spending as much money. That means raising contribution rates, or looking at aspects such as raising the retirement age, cutting eligibility and so on. Neither side of that equation is appetising. Both would be politically damaging. But inaction would be worse. As it stands, the fund is headed towards bankruptcy. There’s time to change that – but not a lot.

As CG Atlantic’s Mr Gibson says: “We knew that this was going to come home. We knew that there was going to be a day of reckoning. It’s what people have been saying for the longest.”

That day is upon us – so what will we do?

Comments

tribanon 6 months, 1 week ago

Anyone with a modicum of common sense knows that only a fool throws good money after bad money. We will all know the NIB fund is certifiably dead if Davis announces his government has hired Anthony Ferguson and James Smith as advisors and/or managers of what remains of it. LOL

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