The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

THE growing threat to the National Insurance Board's (NIB) future viability has been underscored by the $13.4 million 'deficit' between income and benefits payouts in 2016.

NIB's annual report for that year, tabled in Parliament yesterday, revealed that it suffered the largest decrease in annual social security contributions for nine years despite the mid-year wage ceiling increase. "Contribution income decreased by $2.4 million or 0.9 per cent when compared to 2015," the annual report said of the drop to $258.877 million. "The reduction in contribution income is due to the combined effect of the continued weakness in the Bahamian economy, challenges related to the implementation of the Insurance Administration System (V3), and the devastating impact of Hurricane Matthew in the fourth quarter of 2016.

"This represents the largest decrease in the contribution income since 2008 when the fund experienced a slight decline of 0.3 per cent against the prior year." The NIB annual report said the drop in social security contributions also came against the background of an enhanced compliance/enforcement crackdown against delinquent employers and self-employed persons.

In contrast, NIB's benefits payouts grew by $12.7 million or 4.9 per cent year-over-year to $271.5 million, resulting in the scheme's expenditure surpassing contribution income by $13.4 million.

"The increase in expenditure is due to the expected upward trend in pension payments as a result of the aging of the Bahamian population, and the legislated biennial cost of living adjustment, which increased payment to all pensioners up to 3.1 per cent, starting in July 2016," NIB's annual report revealed.

Contributory pension payments increased by $12.5 million to $187.6 million in 2016, while assistance pensions fell by $0.4 million to $14.9 million. Benefits payouts "increased in all categories" except short-term benefits, which fell by $2.3 million or 6.2 per cent to $34.2 million at year-end 2016.

While NIB's challenges are little different from similar government-run social security schemes, the 2016 figures indicate that the scheme is close to the 'tipping point' where annual benefits payouts will start to consistently exceed contribution income.

Successive actuarial studies have estimated that the $1.709 billion reserve fund will be exhausted by 2029, and the latest annual report indicates that the 'window' is rapidly closing on the Government's ability to 'kick the can down the road' on enacting fundamental NIB reforms to ensure the social security scheme's viability - but which might prove painful for many Bahamians.

The 2016 annual report again referred to the last NIB actuarial report, which forecast that the scheme will have a $10.546 billion deficit by 2071 and be unable to pay its obligations unless reforms are enacted now.

As it is, NIB suffered a $15.351 million comprehensive loss for 2016, representing a near $42 million reversal from the prior year's positive $26.494 million bottom line. Total expenses, when factoring in investment income and administrative expenses, exceeded income by $18.847 million.

Administrative expenses, which exceeded investment income by $4.1 million or 8.3 per cent, is something the Government has long been urged to get under control by the IMF and others.

These expenses jumped by 12.5 per cent to $53 million in 2016, which was blamed on the implementation of NIB's new administration system and extra hirings to facilitate the 'Smart Card' drive. This, together with retroactive payments to the Public Officers Union, resulted in staff allowances and benefits increasing by 16.1 per cent year-over-year.

NIB's investment income, meanwhile, shrunk by almost $20 million or 29 per cent to $48.9 million compared to $68.8 million in 2015. The drop was blamed on price volatility among Bahamian equities, with its significant holdings in Bank of the Bahamas, Cable Bahamas and Commonwealth Bank all impacted by stock price declines.

Contributing employers and self-employed persons fell by 7.1 per cent and 6.8 per cent to 12,521 and 9,631, respectively, in 2016, while long-term benefit claims jumped by 16.2 per cent to 3,385.

Approved prosecutions of delinquent employers and self-employed persons declined by 50.8 per cent year-over-year, from 1,083 to 533. Some $427,132 was collected by NIB as a result of settlement agreements with defaulters during 2016.