The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamians were yesterday urged to "take the long-term view" and avoid knee-jerk reactions to the negative returns experienced by pension plans and other long-term savings as a result of COVID-19.

Larry Gibson, vice-president of Colonial Pension Services (Bahamas), told Tribune Business that savers must not panic over a 2020 first quarter drop caused by a decline in value of plan assets such as stocks, real estate and other investment forms.

He spoke after Colonial Pension Services (Bahamas) issued a letter to pension clients revealing that those invested in its Aggressive Growth and Moderate Growth portfolios, which are more weighted towards equity investments, had suffered negative first quarter returns of 4.8 percent and 4.4 percent, respectively.

Warning that most countries' economies have already entered a recession due to the COVID-19 pandemic's fall-out, the pension provider said: "We are living in extraordinary times as the world attempts to grapple with the physical and financial effects of COVID-19. Worldwide the news is grim, and the possibility exists that things could get worse before they get better.

"So much is uncertain...... how long the pandemic will last, and how and when global economies will re-open. For us in The Bahamas, the situation is more acute as this comes on the heels of an already-weakened economy, following the impact of Hurricane Dorian six months ago. With our major sector, and most other businesses, now shuttered, the financial toll on our economy will undoubtedly be significant.

"Initial forecasts by the Government suggest that the cost of the shutdown could be $1bn or approximately 8 percent of gross domestic product (GDP). We believe that this figure could easily move higher depending on the length of time that the economy is closed and how quickly we are able to re-open once containment measures are lifted," Colonial Pensions Services (Bahamas) added.

"It is clear, for now, that with revenue, particularly foreign currency from tourism and foreign direct investments, almost at a standstill, and expenses certain to increase as the Government contends with COVID-19, including initiatives to support the economy and those persons most affected, our debt levels will rise considerably and external reserves will be strained."

Colonial Pensions Services (Bahamas) said the recent downgrade of The Bahamas' sovereign creditworthiness by Standard & Poor's, and the threatened one by Moody's, would further strain the Government's debt burden ahead of it needing to borrow hundreds of millions of dollars to cover both its fiscal deficits and stabilise the economy.

As to what it means for savers and investors, the provider added: "In light of the outlook for the economy, it is clear that there will be challenging days ahead for businesses, including some of the publicly traded companies that we invest in.

"As many of these companies have cut back operations, revenue will decline. So too will expectations for earnings and dividends. This will likely drive down the price of these shares and weigh on the performance of the portfolios. At the end of the first quarter, our Aggressive Growth and Moderate Growth portfolios are down by 4.8 percent and 4.4 percent, respectively.

"We understand that no one likes to see losses in their accounts, and it is only natural that the current circumstances would cause anxiety. But we want to remind you that your pension investments are long-term. When you take a long-term view, it will enable you to withstand the down markets and allow you to participate in the rally when markets recover."

Echoing these sentiments, Mr Gibson told Tribune Business yesterday: "The point we're making is pensions are a long-term investment, and you really should take a long-term perspective unless you are a couple of years out from retirement.

"If that is the case, you should be in less volatile, safer investments such as bonds, preference shares and fixed income securities that don't tend to have the volatility of stocks.... It's all about one's long-term financial security, especially when you don't have the benefit of a regular pay cheque from your job.

"You need to proceed cautiously on your own long-term financial well-being." Mr Gibson said The Bahamas was already "grappling with low levels of coverage" in relation to pensions, with "way less than 40 percent of the total workforce" members of an existing scheme.

He added that some pension plan sponsors were already making changes to the terms of their schemes "to allow for hardship withdrawals" by members and workers, but he reiterated: "History has shown that taking the long-term view is far more beneficial. Economies go through cycles, and the longer you have the greater the chance to recover and for your assets to have a positive return.

"The same thing happened in 2008-2009. For a short while it looked pretty gloomy, and then you had a long-term recovery."

Mr Gibson also pointed out that the prices of listed Bahamian equity stocks were far less volatile than in international stock markets, while the recent declines had given local investors - "particularly young people" - a long-term buying opportunity through the ability to acquire shares at "a much cheaper discount" compared to where they were six months ago.

He revealed that both Bermuda and the Cayman Islands, territories in which Colonial also operates, have or are changing their laws to allow persons tom access their pension fund savings as a means to cushion the blow of job and income losses due to COVID-19.

"It's a one-time raid on the piggy bank, which is the wrong thing to do," Mr Gibson said. "This withdrawal shifts the burden back to the government. If you don't need it, and haven't lost your job, you shouldn't be doing it."