The Tribune

• Retirement savings used for financial survival

• Sum in addition to over $300m NIB, Gov’t aid

• ‘Money management stress is unbelievable’

By YOURI KEMP

Tribune Business Reporter

ykemp@tribunemedia.net

Financially-stricken Bahamians drew down on more than $200m in private pension savings to ensure they survived COVID-19’s devastating economic impact, a financial executive revealed yesterday.

Cleora Farquharson, RF Bank & Trust’s vice-president of pension services, speaking at the institution’s human resources leadership forum, said: “What I found during COVID-19 is, even though we do not have pension legislation in this country, the companies that did have pension plans that came to us, a lot of them had amended their participation agreements - that’s their rules - to allow withdrawals.

“What we saw, in addition to the monies that were given out by NIB (the National Insurance Board), in excess of $200m worth of funds - pension savings - actually went to help persons with COVID-19 and the challenges they have right now financially.”

This drawdown on retirement and long-term savings, apart from giving further insight into the financial devastation inflicted by the pandemic, also signals that The Bahamas’ pension crisis has worsened as a result of COVID-19. Persons will have used their pensions to avoid short-term pain (thereby ensuring their immediate financial survival) at the expense of long-term gain in ensuring they have the necessary pension savings to maintain existing living standards and thereby enjoy a comfortable retirement.

The private pension drawdown is in addition to the more than $100m in unemployment benefits that the National Insurance Board (NIB) paid out at COVID-19’s peak in 2020 as much of the country’s workforce was either temporarily furloughed or terminated. Given the pandemic’s duration, and the fact NIB’s payouts were capped at 13 weeks, the Government was forced to provide its own unemployment benefit to the long-term jobless that totalled some $237m.

Ms Farquharson said: “I sit with too many persons that come to me and their stress levels are unbelievable when it comes to money management. Financial stress is one of the leading problems in a lot of companies.” She added that selecting the right pension plan also requires choosing the correct investment strategy.

“For employees, in order to have a comfortable retirement, they need to have about 70 percent or 80 percent of their [working income] to live comfortable when it comes time for retirement,” Ms Farquharson said. “If your employees have debt, which is unfortunately what you will find in the country, we find that they need to have about 100 percent to 120 percent.

“And when you start looking at that in terms of numbers, if you have an employee that’s retired, and they’re making $20,000 a year, when they stopped working they need $150,000. At $40,000 they need about 600,000, at $50,000 about $820,000 and at $70,000 they would need just under $982,000.”

Ms Farquharson reiterated that the National Insurance Board’s (NIB) $1.5bn reserve fund will soon be depleted if the the social security system does not make fundamental reforms to its pension scheme. Tribune Business previously revealed how NIB suffered a $190m deficit blow-out triggered by COVID-19, resulting in its reserves slumping to $1.54bn at year-end 2020.

Draft 2020 financial statements, which have been obtained by Tribune Business, showed NIB’s reserve fund shrank by almost 11 percent, or nearly $189m, in just 12 months as it was forced to liquidate investments to meet unemployment payouts and other forms of COVID-related assistance when the Bahamian economy collapsed virtually overnight.

The figures reveal that short-term benefits payouts, which would have included NIB’s 13-week unemployment assistance initiative, more than tripled year-over-year - increasing by 209 percent from $41.868m in 2021 to $129.84m - due to the scale of terminations and furloughs sparked by COVID-19 lockdowns and other restrictions.

As a result, total benefits expenditure soared to $405.876m for the 12 months to end-December 2020, representing a 30.2 percent year-over-year jump from 2019’s $311.64m, with the increase driven almost entirely by unemployment and other short-term relief payouts.

And the benefits surge coincided with a 21.3 percent plunge in NIB’s contribution income from employers and their workers, which declined by more than $51m from $287.131m in 2019 to $225.984m the following year. Monies received from employers dropped by almost 20 percent, falling from $166.986m to $134.075m in 2020, while contributions from the self-employed fell by close to 22 percent. They plummeted from $116.11m in 2019 to $90.994m.

Investment income, too, was impacted by the pandemic’s impact on both local and international securities valuations. This fell by close to 39 percent year-over-year, dropping from $68.484m to $41.949m. Acting on instructions from the Central Bank, NIB was requested to liquidate and repatriate overseas investments to boost the nation’s foreign currency reserves as tourism inflows dried up, and the accounts reveal it sold-off some $51.421m in US treasuries.

The combined effect of the contribution and investment income decline, plus soaring benefits payouts, which were both products of the COVID pandemic, was to produce a record $189.5m NIB deficit. This measures by how much the social security system’s benefits payments exceed its income, and the 2020 deficit was more than 22 times’ greater than the prior year’s $8.482m.

NIB was forced to use its reserve fund to cover this deficit, resulting in a corresponding reduction from $1.733bn at year-end 2019 to $1.544bn just 12 months later. While multiple actuarial reports going back two decades have repeatedly warned that major reforms are critical to rescuing NIB, and shoring up its long-term sustainability, the COVID-induced blow-out has likely made this task even more urgent while increasing the amount of work required.