The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

COVID-19 has left the National Insurance Board (NIB) facing an “uphill lift” to recovery after plunging the nation’s social security system into a $240m loss at the pandemic’s peak.

NIB’s 2021 annual report, the latest on record after being tabled in the House of Assembly yesterday, revealed that the pandemic both accelerated and deepened its existing woes by causing the social security system to incur losses of $51.1m for that year following $188.6m worth of ‘red ink’ in 2020.

The combined $239.7m loss, the report revealed, drove NIB’s reserve fund below the $1.5bn mark at year-end 2021 as a consequence of the surge in unemployment and other benefits paid out to support jobless Bahamians and their families during the peak of COVID lockdowns and other restrictions. This marked a more than $200m drop from the $1.7bn-plus levels they had attained from 2017 to 2019.

The 2020 annual report, also tabled in Parliament yesterday, said that year saw “the largest gap between contributions and benefits” since NIB began operations some 50 years ago in 1974. With COVID at its peak, the value of unemployment benefit claims payments surged more than seven-fold from $16.3m in 2019 to $107.7m in 2020.

The number of persons receiving benefits also increased more than six-fold, jumping from 7,117 in 2019 to 44,182 a year later, due to business closures and employee furloughs in tourism-related businesses and other ventures due to border closures, travel restrictions and other measures.

“In 2021, it was clear that NIB’s road to recovery would be an uphill lift,” the annual report said. It was also when the results of NIB’s latest actuarial review,

examining its solvency and ability to meet projected future benefit payments to the Bahamian people, revealed that “if no pension reform is implemented the Fund is projected to be depleted in 2028”.

That analysis was conducted in 2018, when NIB had some $1.74bn in reserves and before they were depleted by COVID-19 to less than $1.5bn. The pandemic’s financial impact has thus made the need for financial reform at NIB that much urgent and greater, hence the Davis administration’s decision to raise the contribution rate by a total 1.5 percentage points from July 1, 2024.

For pension benefits alone, which increased by 9.2 percent year-over-year in 2021, growing from $258.841m to $282.585m, exceeded both that year’s $260.275m gross, and $257.687m net, NIB contributions by workers, employers and the self-employed.

“Contribution income for the year 2021 grew by $31.7m or 14 percent from $226m in 2020 to $257.7m in 2021,” the NIB annual report said, noting that this was driven by the economy and tourism’s post-COVID opening.

“Benefit expenditure once again exceeded contribution income. However, the deficit for the year declined significantly compared with 2020. Benefit expenditure decreased by $78.4m, or 19.3 percent, from $405.9m in 2020 to $327.5m. The significant reduction was mainly due to high unemployment payments as a result of COVID lockdowns in 2020.

“Unemployment benefit declined by $103.6m or 96 percent from $107.6m to $4m.... The deficit narrowed immensely by $129.1m from $189.5m in 2020 to $60.4m in 2021, reducing total reserves to $1.49bn.”

To meet the increased unemployment and other benefit claims, NIB revealed that its certificate of deposit holdings declined almost 87 percent in 2021, falling from $49.5m to $6.6m to generate sufficient liquidity and cash on hand such that it could meet the increased demands.

“For 2021, the amount paid out through the Government-funded pro- grammes administered by NIB totalled $120m - Dorian unemployment programme, $1.3m; government-funded unemployment assistance programme, $43,200; and government-funded extension programme, $118.5m” the annual report said.

Continuing with its crackdown on delinquent corporate contribution payers, NIB said 363 pros- ecutions of employers were handled in the Magistrate’s courts in 2021. Of that number, 340 represented new cases approved for prosecution, and $297,477 was collected from payment installment initiatives that financial year.

NIB’s present reality was predicted more than two decades 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 pay-outs exceeding contribution income.

The recipient of that review, which was only one year out in its depletion estimate, on September 11, 2002, was then-NIB chairman and now-prime minister, Mr Davis. Now, with just four years left to the NIB Fund’s total depletion in 2028, the magnitude of the correction is much more severe for firms and workers still grappling with COVID recovery, the high cost of living, and multiple other challenges.

NIB’s last actuarial report called for a two percentage point increase in contribution rates to be implemented by July 1, 2022, with subsequent further hikes enacted every two years until 2036 to secure the social security system’s long-term financial sustainability. If implemented, that would take NIB’s total contribution rate to 25.8 percent by 2036.

“An increase of the contribution rate by 2 percent (over the existing 9.8 percent) every two years starting on July 1, 2022, and ending on July 1, 2036, could restore the short and medium-term financial sustainability of the scheme,” the last actuarial report said.

“Starting in 2029, the required annual contribution rate to pay for all expenditures becomes the pay-as-you-go (PAYG) rate. As an illustration, the contribution rate will have to increase from 9.8 per cent to 16.9 per cent in 2029, and will reach 32.3 per cent in 2078.”