The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The US Foreign Account Tax Compliance Act (FATCA) provides “another compelling reason in a litany of compelling reasons” for the Bahamas to finally enact modern pensions legislation.

Top fund administrators told Tribune Business there was “really no reason why” this nation had to-date failed to implement even minimal pension regulations, arguing that the situation was “a poor reflection on successive governments”.

Larry Gibson, Colonial Pensions (Bahamas) vice-president, backed warnings by ex-financial services minister, Ryan Pinder, that the absence of legislation had exposed domestic pension funds to FATCA’s onerous compliance requirements.

He was backed by Kenwood Kerr, Providence Advisors’ president, who said bringing the previously-passed Pensions Bill into effect would “minimise” the sector’s FATCA reporting and compliance requirements.

Without that legislation in place, pension fund administrators, managers and sponsors are having to either ‘drill down’ themselves or ask plan participants to identify if they are US citizens, hold dual citizenship or are ‘green card’ holders.

They then have to report this information to the Ministry of Finance which, via the Intergovernmental Agreement (IGA) Model 1 signed with the US, passed the details on US taxpayer clients to the US Treasury and Internal Revenue Service (IRS).

With the absence of legislation preventing Bahamian pension funds from accessing the exemption from FATCA due diligence/compliance requirements, they are having to bear increased administrative, reporting, information technology (IT) and other costs - all of which hurt returns for beneficiaries.

“The main thing is that the pension industry really ought not to be in this position,” Mr Gibson told Tribune Business.

“There really is no reason why we don’t have some de minimis pension legislation on the books. It’s really a poor reflection on successive governments.”

He added of FATCA: “That’s just one more compelling reason in a whole litany of compelling reasons why we need that pension legislation in place.

“Ryan Pinder is aware of it, and the Government is aware of it. What FATCA says is if there’s national pension legislation and regulations, you’re considered to be regulated and you wouldn’t have to comply” with FATCA’s more onerous provisions.

Mr Pinder last week warned the House of Assembly, during debate on the Bill to give legal effect to FATCA in the Bahamas, that many domestic pension funds were “struggling with compliance”.

He added that this was “having a negative effect” on participants in pension plans, something the Bahamas can ill-afford given relatively low savings rate and a society where just 25 per cent of the workforce are covered by pensions.

The ex-minister was backed by Mr Kerr, who told Tribune Business: “The regulatory requirements under FATCA are very onerous, and if you have pensions legislation, the premise is that pensions will be exempt from FATCA once regulated.

“Once the legislation is passed, it would require pensions to be regulated and FATCA reporting would be minimised. That kind of regulatory requirement could be the lever we require to get the legislation passed.”

Mr Kerr said it was “the degree of compliance”, not whether they would have to comply, that was key for Bahamian pension funds in relation to FATCA.

The Providence Advisors chief, echoing Mr Pinder, said that while Parliament had passed the Pensions Bill, it had not been brought into force because the regulations giving it enforcement teeth have yet to be completed.

Mr Kerr said the Government’s Pensions Task Force had “sought to give more teeth” to the legislation passed by Parliament, their main goal being to make employer-sponsored pension plans mandatory in the Bahamas.

Other key features of their deliberations had been to create a Pensions Commission to regulate the industry; the criteria by which pension funds would be regulated and judged compliant; the licensing and registration requirements for service providers such as fund administrators and asset managers; and “fit and proper” requirements for pension trustees.

Calling for the Government to pick up the initiative again, Mr Kerr said: “It just brings us into a modern and fully transparent operating environment. That’s very important.”

Mr Gibson, meanwhile, said Colonial Pensions (Bahamas) was reliant on participants in its plans to “self-declare”, as it has “no way of knowing” whether a person possesses a US passport.

Those who confess are then sent a copy of the W-8 IRS form that they have to complete themselves, so Colonial Pensions (Bahamas) can fulfill its FATCA reporting requirements.

“It’s just one more hurdle now,” Mr Gibson said, adding that the trend of Bahamian mothers giving birth in Florida between the mid-1950s and 1970s meant that there were likely many persons with both US and Bahamian passports.

Many had done little other than renew their US passport since it was issued, and Mr Gibson said FATCA’s compliance requirements meant Bahamians would now incur a cost to their dual citizenship.

“There are a lot of people out there that have dual citizenship and need to regularise their position, and have not done so or are not aware of it,” Mr Gibson said. “They could be travelling, unaware of it and have this big tax liability.”

Making the non-FATCA case for moving on pensions legislation, the Colonial Pensions (Bahamas) chief told Tribune Business: “You have this whole category of people with no savings because we’re such a consumer driven society.

“Who’s going to take care of those people? They’re looking to the Government, and it’s not the Government’s burden alone. You have to take personal responsibility by saving through your working career.”