The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Higher contribution rates will “not secure the National Insurance Fund’s future” by themselves, its director warned yesterday, with its reserves cut by more than $600m over the last six years despite 2025’s 14 percent year-over-year income increase.

Dr Tami Francis, the National Insurance Board’s (NIB) director, told the Bahamas Business Outlook that the heightened benefits payouts that enabled families to survive the COVID-19 pandemic, when incomes were eliminated almost overnight, had “come at a cost” that now requires the social security system to “restore and reform” for long-term sustainability and its own longevity.

She revealed that NIB’s 1.5 percent contribution rate increase, shared equally between employers and workers when implemented on July 1, 2024, had increased contribution income by an average of $4m per month. This, Dr Francis added, had driven total contribution income to an estimated $413.6m last year, representing a $51.3m increase over the prior year.

However, while this surge helped to reduce NIB’s projected 2025 deficit by some $3m, she explained that relying solely on contribution rate increases will not be enough to eliminate the social security system’s “structural imbalances” caused by benefits payouts continuing to exceed its income.

NIB’s 2025 deficit, which measures by how much benefits payments exceed employer and employee contributions, is now forecast to come in at around $29m. Dr Francis blamed the persistent deficits, which were being incurred prior to Hurricane Dorian and COVID-19 and only worsened by the pandemic, on “economic disruption” and demographic changes that are seeing more Bahamians live longer.

This has resulted in an increasingly older population, and its pension payouts, having to be supported by proportionately fewer workers. The NIB director said The Bahamas enjoyed a ratio of seven contributors for every one retiree when the social security system was founded in 1974 but, more than half-a-century later, that has declined to three working contributors for every retiree.

Dr Francis did not yesterday signal that another contribution rate increase is imminent despite NIB’s last actuarial report, which examined its likely sustainability when measured against forecast population changes, calling for a 2 percent rise to be implemented every two years between 2022 and 2036 to “restore the short and medium-term financial sustainability of the scheme”.

Instead, she confirmed that an increase in the insurable wage ceiling - with changes currently implemented on a two-year cycle - will come into effect on July 1, 2026. The last rise took the ceiling, or cap, from $740 to $810 but, under questioning from an Outlook attendee, she said the upcoming increase will take it to “$830 a week at least” and “you can’t expect it to be lower than that”.

Dr Francis also revealed that NIB’s reserve fund currently holds $1.1bn in assets. Tribune Business research, based on NIB’s 2022 annual report, shows that this figure marks a more than $600m decline compared to the $1.7bn-plus reserves that it held as recently as 2018. The fall has resulted from persistent deficits that were exacerbated by COVID-19, with $189.5m and $60.4m deficits incurred in 2020 and 2021, respectively.

“Between the pre-crisis and post-crisis years, contribution income continued to grow yet benefit expenditure grew faster driven by economic disruption and demographic realities,” Dr Francis said of NIB’s core sustainability challenges. “To protect benefits, NIB responsibly - and I say responsibly - drew on reserves not as a weakness but exactly as those reserves were designed to function.

“Here is the reality we must face: A system can be compassionate in a crisis and it can also be sustainable for the future, but it ultimately must be structured to be both.” The July 1, 2024, contribution rate increase took the employer contribution to 6.65 percent from the previous 5.9 percent, while employees saw their share grow from 3.9 percent to 4.65 percent. Self-employed contributions jumped from 8.8 percent to 10.3 percent.

“This policy adjustment has had a materially positive impact on the Fund’s revenue performance, generating an additional average of approximately $4m per month in contribution income,” Dr Francis said. “This increase has proven to be a critical intervention in a broader strategy to strengthen the long-term financial stability of our National Insurance Fund.

“As a result, the total contribution income for 2025 is estimated at approximately $413.6m. This represents a 14 percent increase over 2024’s contribution income, which stood at $362.3m, and reflects both the impact of the necessary rate adjustment and the ongoing modernisation of contribution collections.”

However, Dr Francis conceded that the contribution income growth has only “helped to partially offset the rising benefits expenditure and other structural cost pressures facing the Fund”.

She added: “For 2025, a deficit of approximately $32m was projected and budgeted for, inclusive of the revenue gained from contribution income. Based on current performance and year-end projections, we anticipate an improved outcome with the deficit expected to be approximately $29m.

“While this represents a favourable variance against budget, it nevertheless underscores the continuing financial challenges facing the Fund. It is important to note that a significant portion of the 2025 deficit, $15m or approximately 50 percent of the shortfall, results from the persistent gap between contributions collected and benefits paid.

“This structural imbalance, for us, remains a key concern and continues to exert pressure on the Fund’s long-term viability if left unaddressed.” Dr Francis said the critical role NIB plays, both from an economic and social protection standpoint, is shown by the fact it pays out “more than $30m every single month” - and around $360m per year - in pension benefits that support more than $50,000 persons throughout The Bahamas.

Besides a “disciplined and proactive” contributions collection strategy, which will involve “targeted compliance audits” focused on businesses suspected of being delinquent payers, the NIB director also foreshadowed the upcoming July 1, 2026, insurable wage ceiling increase as a “critical pillar” that will aid system resilience and ensure it continues to provide “adequate protection”.

The last rise was from $740 to a weekly ceiling of $810, and Dr Francis said that while the upcoming rise will be no less than $20 - taking it to $830 per week - it is “not expected to be that much higher” as NIB awaits more information to make an informed calculation and decision.

“As legislated, the next biennial adjustment will occur on July 1, 2026, increasing the insurable wage for higher-paid workers,” the NIB chief said. “This means more of their earnings will be protected, benefits will be calculated on a higher base and income security better reflects a higher cost of living.”

As for employers, Dr Francis said the increase will support “workforce stability” and strengthen defences against “crisis-drive disruption”. She added: “This is what we call shared security. Shared security requires shared responsibility. While these reforms strengthen the system… we must be clear on one thing. We cannot rest on our laurels because contribution reforms alone cannot secure the future of the National Insurance Fund”.