The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The International Monetary Fund (IMF) is urging the Government to mandate that all 23,000-plus civil servants contribute to funding their own retirement so as to protect taxpayers from further growth in the $2bn-plus “unfunded” public service pension liabilities.

The Washington D.C. based Fund, in its just-released Article IV consultation report on The Bahamas, called on the Davis administration to go further with long-awaited reforms by “transitioning… all public servants” - not just new recruits - to a proposed defined contribution pension scheme.

This arrangement, when created, would require government employees to contribute a portion of their salary earnings to financing their own retirement as opposed to the existing defined benefit, or ‘pay as you go’, scheme where civil service pension pensions are financed entirely by the Bahamian taxpayer via allocations made in the Government’s annual Budget.

The IMF, while reassuring that the Government must “honour” all benefits due to existing civil servants under the current 100 percent taxpayer-financed scheme, went further than the most recent proposals outlined in the draft Pensions Bill 2023. This called for all new civil service hires, once they have completed their six month-probationary period, as well as all existing officials with less than eight years’ pensionable service, to join the new scheme.

The switch to a defined contribution plan was to have been optional for pensionable public servants with more than eight years’ public service, but the IMF is recommending that the Government go further and require all civil servants regardless of tenure to make the switch in an effort to “lessen the actuarial imbalance of the whole system”.

And it reiterated previous warnings that the unfunded civil service pension liabilities, now estimated to exceed 15 percent of The Bahamas’ annual gross domestic product (GDP) or annual economic output, represent the equivalent of a ‘ticking timebomb’ that threatens to impose a massive burden on Bahamian taxpayers and future generations if not swiftly addressed.

Tribune Business calculations, based on the $14.485bn real GDP projected for the 2025-2026 fiscal year in the Government’s Budget, peg these unfunded public service pension liabilities at $2.173bn currently - meaning they represent obligations that no funds are available to pay. Simon Wilson, the Ministry of Finance’s financial secretary, previously described this as “the top risk” to the stability of the Government’s finances.

“The planned reform to the civil service pension system should be supplemented with more holistic changes,” the IMF’s Article IV report asserted. “This scheme for public servants is funded entirely by the central government, and the unfunded liability exceeds 15 percent of GDP.

“The authorities’ proposal would convert the system over time into a defined contribution pension system. The reform should be complemented by broader changes to lessen the actuarial imbalance of the whole system - indexing the retirement age to life expectancy, and transitioning over time all public servants to the new scheme, instead of only the new hires, while honouring the benefits that have accrued under the existing plan.”

The Government, though, is under no obligation to adopt the IMF’s recommendation that all civil servants - instead of just new hires and those more junior - be made to share the cost of contributing to their retirement income. And it is unlikely to implement any civil service pension reform in the near-term given the upcoming general election where the votes of civil servants and their families could prove key to the outcome.

Still, the Government appears to have taken some tentative steps to move pension reform forward. Belinda Wilson, the Bahamas Union of Teachers (BUT) president, who was yesterday focused on industrial agreement negotiations after her members “voted overwhelmingly” to reject the Government’s latest salary offer, revealed that she had received a pension reform proposal late last year.

“They sent me a draft pension proposal in October 2025. I have heard nothing since then, and I have not sent any response to this draft,” Mrs Wilson said in a messged response to Tribune Business inquiries. Kimsley Ferguson, the Bahamas Public Service Union (BPSU) president, could not be reached for comment before press time and did not reply to this newspaper’s calls and messages.

Mrs Wilson told this newspaper last year that Prime Minister Philip Davis KC had “assured” her and other BUT executives, when they met on March 4, 2025, that the Government “would not be going forward with the Pension Bill 2023”. She added that he informed them that “a new Pension Bill” was being considered and, once drafted, would be shared with the relevant public sector unions for consultation and feedback.

That process, based on the October 2025 proposal, appears to have creaked to a start. One of the principal attractions of working in the Bahamian public service has been the 100 percent taxpayer-funded pension, which means workers do not have to contribute a cent to funding their retirement, but that may soon be coming to an end - at least for new hires.

Still, the timing of any reform remains uncertain despite Mr Wilson describing the unfunded pension liabilities as needing to be “dealt with as soon as possible” to reduce the threat that taxpayers will increasingly be called upon to plug this multi-billion dollar hole.

The Government’s last Fiscal Strategy Report, tabled in May 2025 to coincide with the 2025-2026 Budget, said it was “expected to table in Parliament” the necessary legislation during last year’s Budget debate. However, that never happened, even though the report identified the issue as a “significant structural risk” that is projected to require a near-$50m annual increase, or 25.5 percent jump, in annual Bahamian taxpayer funding over the next four fiscal years to 2028-2029.

The Fiscal Strategy Report reiterated that, if not addressed, the unfunded civil service pensions will “exert increasing pressure on the fiscal balance” and “crowd out resources” needed for investment in critical public services, such as education, healthcare and national security, plus infrastructure upgrades.

Instead, Prime Minister Philip Davis KC announced an imminent salary increase for civil servants which the Government has now executed despite complaints of delays.

“Containing long-term pension obligations remains a key priority to ensure fiscal sustainability, improve inter-generational equity, and reduce unfunded contingent liabilities,” the Davis administration’s latest Fiscal Strategy Report stated.

“Recurrent expenditure on pensions and gratuities totalled $182.7m in fiscal year 2023-2024, representing 6.2 percent of total recurrent spending. This figure is projected to increase to $201.6m in fiscal year 2025-2026.” It added that “an operational model for the new contributory scheme” has been designed, and a “phased implementation plan” worked out.

Civil service pension and gratuity payouts, which are presently 100 percent funded by the Bahamian taxpayer, were forecast to hit $189.7m during the 2024-205 fiscal year with $139.313m of this sum paid out during the nine months to end-March 2025.

Thereafter, these payouts are predicted to accelerate in size, with total pension and gratuity outlays rising to $201.6m in the upcoming 2025-2026 Budget cycle, and followed by further rises to $215.9m in 2026-2027; $230.2m in 2027-2028; and $238.1m in 2028-2029.

“According to a feasibility study by KPMG Advisory Services, total pension liabilities are projected to reach up to $4.1bn by 2032, with annual cash outflows rising from approximately $165m to $219m over that period. These outflows include both pensions and gratuities, and represent a growing share of the Government’s mandatory, non-discretionary spending,” the Fiscal Strategy Report said.

The draft Pensions Bill 2023 would have required - for the first time - to contribute to financing their retirement from their own salaries. Civil service pensions are currently 100 percent financed by taxpayers through the annual Budget.

The Bill, if enacted as is, would have created a contributory pension scheme called the Public Service Contributory Pensions Fund. Its members would include all new civil service hires after it is passed by Parliament, and becomes law, once they have completed their six-month probation, while all existing public officials who have held pensionable positions for less than eight years would also be transferred to the contributory plan.

Civil servants in pensionable positions for more than eight years could have voluntarily chosen whether to join the contributory scheme or retain their current arrangements. The mandatory contribution rate has been set at 3 percent of a plan member’s monthly salary, with the Government making a matching 3 percent payment.

Workers can have also chosen, on their own accord, to raise the contribution rate for their portion to a maximum 10 percent although this would not be matched by the Government. The Public Service Contributory Pensions Fund would have been overseen by a Board, which was to appoint an independent investment manager, fund administrator and custodian to manage and safeguard pension plan assets.