The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is moving to tackle its “huge” unfunded pension liability to the public sector, a Cabinet Minister telling Tribune Business that the general lack of retirement savings was “a social timebomb” for the Bahamas.

Michael Halkitis, minister of state for finance, disclosed that the Christie administration was moving “to get a handle” on the size of its pension obligation to civil servants and other public sector workers, then develop a strategy to address it.

Pledging that the issue was “on the front of our radar”, Mr Halkitis indicated that the Government’s review would also encompass the existing defined benefit plans offered by several public Corporations.

Among the issues to be assessed, he hinted, was the fact staff were making no contributions to their own retirement plans, creating a substantial burden for Corporations - such as BEC - which were funding them 10 per cent.

“We’re going to be looking at the broader issue of pension funds in the public sector and really getting a handle on that,” Mr Halkitis told Tribune Business.

“We’ll be reaching the stage of putting studies together and, as time goes on, we will address that issue.”

While not putting a figure on it, Mr Halkitis described the Government’s unfunded public sector pension liabilities as “huge” and “quite large”.

“Now is the time to address it, gather information and put in place an action plan,” he told Tribune Business, “so that 10-20 years down we can see some improvement. It’s on the front of our radar.”

This is not the first time concern has been expressed over the Government’s unfunded public sector pension liabilities, and the implications this has for an already-stretched fiscal position.

Raymond Winder, Deloitte & Touche (Bahamas) managing partner, told Tribune Business in July 2012 that the Government’s antiquated accounting system meant it was massively underestimating its true liabilities by millions of dollars, spelling trouble for a debt-to-GDP ratio that is already over 60 per cent.

The Government was currently using a cash, rather than accrual, accounting/bookkepping method. If it switched to the latter, Mr Winder said its largest unfunded liability, civil service pensions, would have to be recognised, expanding public sector spending commitments to the tune of millions of dollars.

Elsewhere, Mr Halkitis added that the general lack of retirement savings - just 25 per cent of the Bahamian workforce is covered by an employer-sponsored pension plan - was storing up a huge financial burden for present and future Bahamian generations.

With the general rule being that individuals needed 70 per cent of their retirement income to maintain their living standards, Mr Halkitis said the National Insurance Board (NIB) would simply be unable to meet the needs of most Bahamians.

“It’s critically important. It’s a social timebomb,” Mr Halkitis told Tribune Business of the need to improve Bahamian savings, investments and retirement planning. “Something has to fill that gap between needs and retirement income.

“An individual requires 70 per cent of pre-retirement income to maintain their standard of living. That tells you that you need to plan.

“Even if they do not have a company sponsored plan, individuals needs to establish their own plan with an independent provider, or put in place their own savings plan, so that when they retire they are not solely dependent on NIB.”

Noting that educating Bahamians on pensions and savings would be a key function of the promised Pensions Commission, Mr Halkitis said the Employee Pension Fund Protection Bill was designed to prevent situations such as the City Markets debacle from occurring.

“We want to make sure that doesn’t happen in the future,” the Minister said.

He added of the legislation: “The objective is to have an independent [pension fund] administrator who will report to a Commission, and who will be governed by certain standards and expectations. There’s also reporting requirements.

“Going forward, we want to minimise the possibility of a situation where employees can’t have access to a pension fund.”

The Act’s requirements, even though its does not make company-sponsored pension plans mandatory, go “a long way” towards providing protection for beneficiaries of existing ones, Mr Halkitis said.

The requirement for company pension funds to be handled by an independent administrator, or manager, would likely have prevented the $3 million sale-and-leaseback deal that embroiled the City Markets pension fund in controversy under the former BSL Holdings ownership.

“We think it’s a good step forward,” Mr Halkitis added. “It’s been called for. We think it’s a good step forward in financial services, providing opportunities for administrators to increase their business.

“We want to encourage business and people in general to take the opportunity of us doing this legislation to examine the prospects and feasibility of doing this for their employees.”

An increase in company-sponsored pension plans would also create a greater pool of capital for savings/investments by Bahamian in the domestic economy, Mr Halkitis said.

The Pensions Commission, he added, would have the task of educating Bahamians on the importance of having a pension and “setting something aside for a rainy day”.