The Tribune

• COVID worsens savings and pension ‘crisis’

• Bahamas must ‘pick up the pace of reform’

• ‘Buried heads in sand’ on looming ‘disaster’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

COVID has worsened The Bahamas’ looming savings and retirement crisis, a pensions specialist warned yesterday, adding: “Future generations will say we did them no favours.”

Larry Gibson, chief operating officer of CG Atlantic Pensions, told Tribune Business that the problem of inadequate retirement income for thousands of Bahamians will eventually morph into a social and economic “disaster” unless this nation “picks up the pace of reform” in multiple areas.

Arguing that the pandemic had deepened these woes, he said this nation can no longer afford to “bury our heads in the sand and ignore” challenges that grow every year for a workforce that has to support an ever-growing pool of retirees who are living longer but lack the means to support themselves.

Speaking after Cleora Farquharson, RF Bank & Trust’s vice-president of pension services, revealed earlier this week that financially-stricken Bahamians drew down on more than $200m in long-term pension assets to ensure they survived COVID, Mr Gibson said this had only exacerbated issues that have “been put on the back burner” for too long.

While many Bahamians still expect the Government to “bail them out” financially in retirement, he told this newspaper that it no longer has the “headroom” to do so especially following the debt and fiscal deficit blowouts produced by COVID-19. The Government itself paid out $237m in unemployment benefits to furloughed and terminated workers during the pandemic, while the National Insurance Board (NIB) suffered a $189.m deficit (loss) for 2020.

Describing those payouts as “phenomenal”, Mr Gibson said COVID had further added to long-standing savings and retirement challenges stemming from the fact that too few Bahamians have private pensions. “We just have so many persons in our workforce not covered by a plan whatsoever,” he told Tribune Business, pointing to a participation rate towards the lower end of the 20-30 percent range. “We need to be concerned.

“The real point is that we have several things going on concurrently. One, you have the low participation rates in pension funds and plans of any kind. That’s number one. Number two, you have a change in demographics that will affect NIB and the pension element of those plans because we are rapidly aging and have less people in the workforce to support those who retire. The ratio is going further against us every year.

“Number three, we have an economy that has really been flat for the last 10-12 years. The growth in 2021 and 2022 is simply because we are coming off a low base [due to 2020’s COVID contraction] and moving back to normal activity. We’ve been in this low to no growth environment for many years. There are multiple issues we need to address down the line,” Mr Gibson continued.

“In the short-term we need to be really mindful of our balance of payments and make sure to finance imports for critical consumption. We need to make sure that pre-conditions exist where domestic savings are mobilised. People need to have confidence, and we need to make reforms.

“The Governor [of the Central Bank] said exchange controls will be with us for a long time because we need to do some structural reforms. I guess that’s a cut way of saying there are some headwinds on the horizon. We’ve got to pick up the pace of reform.”

Mr Gibson explained that these macroeconomic challenges will weigh heavily on The Bahamas’ existing savings, and further complicate efforts to encourage more persons to set aside funds that will ensure they maintain their current living standards in retirement. 

“I’ve written extensively about it over the years and my position hasn’t really changed,” he told Tribune Business. “This is a crisis because as we go on people’s general financial position is deteriorating, and they have this expectation that the Government will bail them out. A lot of them retire with small sums that can’t do much for them. 

“COVID certainly doesn’t help in any form or fashion whatsoever. What we elect to do is bury our heads in the sand and ignore it, and every year we ignore it, it gets worse. The pensions industry has been saying this for years to no avail. It always gets put on the backburner.

“One somebody’s watch you’re going to have a disaster, and then we will have an absolute crisis. My fear is for future generations. They’re going to look back and say the current generation didn’t do them any favours.”

While The Bahamas is not an outlier in terms of its economic and social challenges, Mr Gibson added: “Where we are unique is we don’t have the safety net, the defined social security structure, the mandatory pensions. We don’t have this blanket of savings whereas other countries have more leeway. COVID certainly took up the country’s overall debt level, so that’s reduced the long-term headroom we have.....

“Yet what’s going to happen is they’re [retirees] going to then look to central government. For some reason everybody has the expectation that it’s the Government’s problem, and they have no contribution to make towards providing towards their long-term financial security. That has to change. It’s everybody’s problem. Everyone has a role to play. The Government just doesn’t have the headroom.”

The Government also has its own woes with the unfunded civil service pension liabilities, which previous research by the KPMG accounting firm suggested would likely have reached $2bn by this stage without any reforms. None have yet been made.

Participation in private pension schemes, and their provision by employers, is voluntary in The Bahamas. Prior administrations have explored introducing mandatory pension legislation, and Mr Gibson recalled sitting on several committees tasked with drawing up reforms, only to see their efforts ultimately shelved and progress no further.

Conversely, this meant COVID’s impact on the Bahamian pension industry in terms of drawdown by plan beneficiaries “nowhere near what we saw with our Caribbean counterparts”. This, though, was simply because lower Bahamian participation rates meant there were fewer people seeking to access their retirement funds and long-term savings.

In the Cayman Islands, which mandates almost 100 percent participation in a pension plan, Mr Gibson said about one-third to 35 percent of all plan assets were withdrawn to facilitate COVID survival. But the impact was “more modest” in Bermuda where around 10-15 percent of pension plan assets were withdrawn.

He added that, in The Bahamas, a number of employers sponsoring pension plans for their staff amended the rules to allow workers to make “hardship” withdrawals. “Overall, our impact was not as big,” Mr Gibson said.

RF Bank & Trust’s Ms Farquharson, speaking to this earlier this week, said: “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.”

Pointing to pension and retirement savings challenges that existed pre-COVID, she added: “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.”