Myles Laroda, the state minister with responsibility for NIB.
By YOURI KEMP
Tribune Business Reporter
A Cabinet minister yesterday warned that the National Insurance Board (NIB) plans to intensify its pursuit of delinquent employers and self-employed persons who owe “tens of millions” in unpaid social security contributions.
Myles Laroda, minister of state in the Prime Minister’s Office with responsibility for NIB, said prior to the weekly Cabinet meeting that multiple businesses are still being brought before the courts for failing to make payments on their employees’ behalf.
While unable to say how many businesses are delinquent, or are being brought before the courts, he urged employers to “become current with their employee and employer contributions because the National Insurance Board will be doing all in its power to collect funds that are so needed at this time”.
Mr Laroda said the non-payment of contributions often came to light when employees complained these were being deducted from their salaries but not paid to NIB by the employer. The COVID-19 pandemic further exposed contribution delinquencies when employees of culpable employees sought to submit applications for unemployment benefit and other forms of social assistance.
“I can say that from I’ve become the minister responsible, I see on a monthly basis in the report those companies that are put before the court for contributions,” Mr Laroda added. “It’s all relative, but it’s consistent and it’s concerning to the point that we have to be going through it. If you’re seeing different names every month, and I think in the dozens, it leads you to believe there are a lot of funds out there to be collected.”
The amount of contribution income that NIB is losing out on is in the “tens of millions”, Mr Laroda estimated. Delinquent and/or late contribution payments have been a regular feature at NIB for decades, but resolving the situation has now become much more urgent after actuaries confirmed that the social security system’s $1.6bn reserve fund will be exhausted by 2028 - just six years away.
Addressing this situation, Mr Laroda said: “I would say that in the past NIB has been aware of the of the dire state of the fund, in particular the pension part of it. Twenty years ago, if you’re saying the fund will be depleted in 2029, you’re talking about 20-plus years down the road. Now you’re talking about less than ten. So the urgency is there.”
Many Bahamians, and especially those approaching retirement age at around 65 years-old, will need NIB’s long-term sustainability to be secured as its pension payments will be the only benefits they receive. Mr Laroda said that while NIB’s investment portfolio was performing, and delivering multi-million dollar annual returns, even this income was insufficient to cover the gap caused by the fact that benefit payouts now exceed contribution income annually.
NIB’s 2017 annual report, the last to be publicly disclosed, revealed that the year’s $277.5m contributions were exceeded by $286.5m in benefit payouts. The same occurred the previous year, when $275.2m in benefits overshadowed $261.2m in contributions. NIB’s income only remained positive as a result of earnings on its investment portfolio.
NIB’s present reality was predicted more than two decades ago by its seventh actuarial review, completed in 2001, which forecast that “reserves are projected to become exhausted” by 2029 if comprehensive reforms are not implemented to address the fundamental problem of benefit payouts exceeding contribution income. The recipient of that review, which was only one year out, on September 11, 2002, was then-NIB chairman and now-Prime Minister, Philip Davis QC.
Now, with just six years left to the NIB Fund’s total depletion, the magnitude of the correction will be that much more severe for businesses and workers already grappling with surging inflation, COVID recovery, rising gas prices and a potential minimum wage increase. Private sector executives described the prospect of NIB contribution hikes as a “double” or even “quadruple whammy” for a business community still fighting for “survival.
Yet there was also an acknowledgement that NIB cannot be allowed to fail, given that for thousands of Bahamians it represents a key source of retirement savings (pensions) while also ensuring that others remain above the poverty line through the provision of unemployment, sickness, industrial accident, maternity and death/funeral benefits.
NIB contributions, which take the form of a payroll tax, are currently split 3.9 percent/5.9 percent between employee and employer, respectively. They have seen only one increase this century, when the combined rate rose from 8.8 percent to the present 9.8 percent in 2010. Any new rate hikes, besides increasing business costs, will also cut into employee take-home pay and disposable income just when they are facing heightened inflation.