The Tribune

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

The Chamber of Commerce's chief executive says he is "baffled" at the government's failure to reform public sector pensions by making civil servants contribute towards their own retirement costs.

Jeffrey Beckles, speaking on a webinar hosted by the Chartered Financial Analyst (CFA) Society of The Bahamas, said: "I can't find a model in the world that has been using the same system where it has proven successful or profitable, and I don't know what causes us to feel that we will be the first country to maintain it and be successful.

"So I believe that the time has passed and, certainly with urgency, we must move to change it towards a contributory one. The time is now." The government is well aware of the "ticking time bomb" that unfunded civil service pensions represent for both its financial sustainability and that of the country, given that the issue has been identified by multiple observers as a major weakness for years.

The International Monetary Fund (IMF), as recently as its 2018 Article IV report on The Bahamas, warned that the current system - where civil servants contribute nothing to funding their retirement - is "unsustainable".

The Washington DC-based fund listed civil service pensions, together with the public sector's wage bill and loss-making state-owned enterprises (SOEs), as three key reforms that the government must target if it is to reverse The Bahamas' fiscal decline - and that was before both Hurricane Dorian and the COVID-19 pandemic.

"The civil servants' pension system is unsustainable," the IMF warned two years' ago. "Government employees draw pensions at retirement without contributing to the system while employed. Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled $1.5bn in 2012, and would rise to $3.7bn by 2030 as the population ages."

The IMF called for reforms that involve "moving to a contributory regime in the near term, and to a defined-contribution scheme in the medium-term". This would require civil servants to contribute a portion of their salary to funding their retirement, rather than having this financed 100 percent by the taxpayer through the budget - as is done currently.

The government has known of its growing pension crisis for some time, but successive administrations have neglected to take any corrective action, instead preferring to "kick the can down the road".

Tribune Business possesses a presentation delivered by the KPMG accounting firm in 2013, the early years of the Christie administration, which provided options for how the government could arrest a growing liability that threatens to burden future Bahamian generations.

KPMG estimated the unfunded, "pay-as-you-go", civil service pension liabilities at around $1.5bn. These liabilities were set to increase to $2.5bn by 2022, and $4.1bn by 2032, unless reforms are enacted.

The 2020-2021 budget allocates some $106.1m towards paying civil service pensions, matching the amount provided in the current fiscal year. This sum, though, is projected to increase to $111.1m in the 2021-2022 fiscal year, and then grow further to $117.1m in 2022-2023.

And, with gratuities paid to civil servants increasing from the present $30m to $33m by that latter year, the sum Bahamian taxpayers will be paying to finance civil servant retirements and gratuities is set to jump by just over ten percent or $14m within the next two years to hit $150.1m

Anthony Ferguson, CFAL's (the former Colina Financial Advisors) principal, told the same webinar his firm has "recommended repeatedly to any number of quasi-government agencies" to convert from a defined benefit pension plan, where the employer funds 100 percent of the employee's retirement, to a defined contribution scheme. The latter involves employees making contributions to their own retirement that are matched by the employer.

"In fairness some have converted to a defined contribution plan, but again the lack of political will to make the tough decisions to cause all of these plans to be contributory will only further burden not just us but our kids tomorrow and in the future," Mr Ferguson added.

Describing COVID-19 and the associated economic contraction as a "pancession", he said: "I'm hoping that out of this pancession, government would now cause mandatory savings as in Bermuda as in the Caymans and as with some of the others in the developed world. I'm hoping that this would be one of the changes we see coming out of this pancession.

"The National Insurance Board (NIB) had a deficit last year, and when I say deficit, meaning the total contribution, total investment income versus what they paid out, of about $35m plus. I know in July they are expected to increase the insurable wage which will increase some degree of contribution.

"However, NIB is running a significant deficit..... Perhaps it is time that they really include NIB as part of the total budget so we can really get a better feel for where we're at. The reality is there is about $2bn plus of unfunded pension liabilities in this country."