The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas has to increase its pension plan participation rate by at least 40 percentage points to catch up with developed economies, a leading industry executive yesterday urging that mandatory retirement savings was “where we must be”.

Describing as “scary” the fact that just 21 per cent of the Bahamian workforce was covered by employer-sponsored pension plans, Larry Gibson, vice-president of pensions at Colonial Pensions Services (Bahamas), said mandatory plans were “not on the table” despite virtually every MP having called for this during Monday’s debate.

Mr Gibson, who headed the Pensions Task Force that was appointed by the former Ingraham administration, praised the Employee Pension Fund Protection Bill - which drew upon much of the Task Force’s work - as “a step in the right direction”.

He described, though, as “ridiculous”, the Bill’s decision to impose a $10,000 ceiling on fines that could be levied on employers for not making due contributions to their plans, saying this would be no deterrent to larger companies.

The Task Force had recommended at $100,000 maximum fine and up to two years imprisonment for serious offences under the Act, and Mr Gibson said he also opposed provisions that would allow employees access to their accumulated pension fund monies via a ‘Hardship Withdrawal’.

Suggesting that the Pensions Commission’s functions would fit better under the Securities Commission, rather than the Insurance Commission, Mr Gibson also urged the Government to issue the Bill’s accompanying regulations as quickly as possible.

This, he added, would give the Employee Pension Fund Protection Bill enforcement teeth, and he urged the Government not to repeat the Domestic Insurance Act, where there was a three-year gap between the Act’s passage into law and the regulations coming into effect.

And Mr Gibson also backed the Government’s move to determine its “huge, huge” unfunded civil service pension liability, describing the current arrangement - and many Corporation defined benefit plans - as “not affordable and sustainable”.

Suggesting that the Government require all new Corporation employees and civil service hires contribute a portion of their earnings into new, defined contribution plans, Mr Gibson said this would send a positive message to the likes of the International Monetary Fund (IMF) and Wall Street.

Backing the Government’s move to bring the Bill forward, Mr Gibson told Tribune Business: “The fact only 21 per cent of the population is covered by a pension plan; that’s scary.

“Our participation rate is much, much too low. When you look at a modern economy, the participation rate is up at 60-70 per cent. We have a long way to go.

“They have to be mandatory. That’s where we need to be, that’s where we must be. But, overall, it [the Bill and House debate] was very positive and a step in the right direction.”

Mr Gibson added that it was “absolutely vital and absolutely essential” for pensions to be mandatory in the Bahamas. Given the rate of population growth, which was exacerbated by the influx of migrants, he said it was impossible for the Government’s revenues to keep up with social security needs.

“Every employee in the workforce should have a pension plan. There has to be a regime where there are savings,” Mr Gibson told Tribune Business. “It’s absolutely critical. The sociological aspects are compelling.”

To ease the burden on employers and the Bahamian economy, Mr Gibson said mandatory pensions could be ‘grandfathered’ in.

He suggested that, come 2014, a mandatory pension regime requiring that employers contribute 1 per cent of a worker’s salary, with a matching 1 per cent worker contribution, be instituted.

These contributions could then be increased by one percentage point per annum until both parties contributed sums equivalent to 5 per cent of a worker’s salary by 2019.

“What is totally ridiculous is the level of fines. There’s no teeth at all,” Mr Gibson told Tribune Business. “It’s a maximum of $10,000, and in our recommendations it was $100,000. That’s no penalty for larger employers.”

Acknowledging suggestions that pension fund legislation should have been enacted five-10 years ago, the Colonial Pensions Services (Bahamas) executive added: “The real issue is that we need to move swiftly to get the regulations.

“We don’t want it to be like the Insurance Act, where regulations were approved three-plus years after the Act was passed.”

While he himself had yet to see any regulations accompanying the Bill, Mr Gibson acknowledged comments by Michael Halkitis, minister of state for finance, indicating their development was “fairly advanced”.

Noting that the legislation aimed to ensure that only qualified fund managers and administrators touched pension fund money in the Bahamas, Mr Gibson said the industry was better regulated by the Securities Commission, given that it oversaw these professionals already. Regulatory duplication would thus be avoided.

Noting that many employers have avoided implementing pension plans for their workers, regarding it as a ‘tax’, Mr Gibson said the Act’s passage had also shone the spotlight on public sector pensions.

Noting that all pension plans had to be registered one year after the Act’s passage into law, Mr Gibson said those that were underfunded - where liabilites owed to beneficiaries exceeded assets - could not be.

This, he suggested, meant that defined benefit plans at the likes of BEC, ZNS and Water & Sewerage could not be registered.

Suggesting that defined benefit plans at the public Corporations had a combined solvency deficiency of around $200 million, Mr Gibson added that the civil service ‘pay as you go’ scheme had a “huge, huge” unfunded liability.

“It’s absolutely essential we know what that is,” he added. “In the public sector pension plans, a lot of provisions and benefits are tied to union contracts, and we have to work through those.

“But the real issue is that a lot of these plans are not affordable and sustainable on an ongoing basis.”

Mr Gibson suggested that all new Corporation and civil service hires be put into defined contribution schemes, saying the likes of Moody’s would “take great comfort from that”.

As for allowing workers access to their pension money in times of hardship, Mr Gibson said of that Bill provision: “I don’t support that at all.

“It’s counter-intuitive and I think it’s the wrong thing to do. It really defeats the purpose.” He added that in Bermuda and the Cayman Islands, which had implemented similar provisions, there had been no major withdrawals of pension assets by beneficiaries.