The Tribune

• 'Shameful' successive Govt's ignored reform need

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Private sector executives last night voiced relief that The Bahamas is no longer "hanging on this thing" after the Prime Minister confirmed a National Insurance Board (NIB) contribution rate increase will be implemented on July 1, 2024.

Philip Davis KC provided no further details in his statement other than to confirm the increase and the date, while asserting that the further year's delay will not make the magnitude of the hike any greater. "To those who worry that a delay will make the eventual increase larger than it otherwise would have been, we can assure you that will not be the case," he said.

"Let me assure all Bahamians that while we acknowledge the need for adjustments, no NIB rate increase will occur during the new fiscal year. Instead, the rate increase will be implemented next year on July 1. The global inflation crisis has been a significant strain on household finances for many Bahamians, and we do not wish to impose any additional burden. We hope that a full year's advance notice will allow all impacted the time to plan to accommodate the increase."

Peter Goudie, the Bahamas Chamber of Commerce and Employers Confederation's (BCCEC) labour division chief, and a National Tripartite Council Board member, told Tribune Business it was "shameful" that successive administrations had elected to kick the proverbial can down the road and address NIB's woes despite warnings from two decades ago that reforms were necessary to save the country's social security system.

"I would just say it's no surprise," he said of the Prime Minister's confirmation. "We've expected it. The business community is prepared because we knew it was coming, and it has to come. That's nothing surprising. What I will say is I'm glad he's [the Prime Minister] made a decision because he's left the country hanging on this thing. All I can say is: Let's make a decision and move on."

Mr Goudie said The Bahamas simply cannot afford for NIB to fail, and its $1.5bn reserve fund to become exhausted, given the number of pensioners and other Bahamians who depend on its benefits and assistance. "We've got to save people's pensions," he added. "We a democratic country committed to social assistance. We have a pension fund and need to keep it alive.

"We can't abandon the people who don't have money. If they don't have NIB, what are they going to do? They will turn to social assistance and it will come out of our pockets as taxpayers. We need to get this thing done, stop the foolishness and move on."

NIB’s present reality was predicted more than two decades by its seventh actuarial review, completed in 2001, which forecast that “reserves are projected to become exhausted” by 2029 if comprehensive reforms are not implemented to address the fundamental problem of benefit payouts exceeding contribution income. The recipient of that review, which was only one year out, on September 11, 2002, was then-NIB chairman and now-Prime Minister, Philip Davis QC.

Now, with just five years left to the NIB Fund’s total depletion in 2028, the magnitude of the correction threatens to be that much more severe for businesses and workers already grappling with surging inflation, COVID recovery, rising gas prices and other cost increases. Contributions are presently split 5.9 percent/3.9 percent between employer and employee, making for a combined 9.8 percent, but there was no indication from Mr Davis on what the actual increase will be.

"It is important that Bahamians know that we will use the year to come to implement significant reform at NIB,” the Prime Minister said yesterday. “We intend to make our system more efficient and more user-friendly. Bahamians deserve a simple and transparent process. We will continue to scrutinise claims to prevent fraudulent activities and ensure that those who contribute are the ones who benefit.

“The rate increase beginning in July 2024 will therefore be accompanied by enhancements to NIB's service delivery, accountability, compliance efforts, and sustainability. Our goal is not merely to ensure the longevity of the NIB but to create a system that truly serves its purpose: to support Bahamians when they need it most.”

Mr Goudie said successive administrations, both FNM and PLP, have to take responsibility for NIB's present predicament and the failure to implement reforms earlier. "I remember we had a Blue Ribbon Commission and everything else," he added. "This talk has been going on forever, and everybody has avoided it. It's shameful; it should have been done a long time ago. It would not be such a shock now.

"We've been avoiding this issue for how long? It's not a surprise. It's shameful something was not done 20 years ago." Businesses and employees, though, can currently do little active planning because, apart from the date, no details on the magnitude of the increase for either party has been provided.

NIB’s 11th actuarial report called for a two percentage point increase in contribution rates to be implemented by July 1, 2022, with subsequent further hikes enacted every two years until 2036 to secure the social security system’s long-term financial sustainability. The date given by the Prime Minister means that the Government will ultimately end up pushing this back two years.

Other NIB reform options include raising the “official” retirement age, increasing the contributions required to become eligible for benefits, and further insurable wage ceiling increases. Larry Gibson, chief operating officer of CG Atlantic Pensions, who has long advocated for comprehensive pension and social security reform in The Bahamas, yesterday said change needs to "go the whole nine yards" beyond a contribution rate rise.

Such reforms, he argued, must include "enhanced governance" and more "prudent" investments and management of NIB and its assets. "We need to see what it is and where does that take us to in the actuarial funding status," Mr Gibson said of the contribution rate increase. "We're at the point now where the payout is more than contributions and that's not sustainable.

"They don't have too much choice but to do that. I suspect it it will be a fairly small increase, but we will have to see what impact that will have on the security of the fund itself. We have got to get people who should be contributing, contributing. The demographics are not going to be in our favour for the next 25 to 30 years, and we have to get the economy growing so the base of contributors increases."

A smaller working population has to support a growing number of retirees with their contribution payments, which is adding to the stress on NIB. "For the next 10-15 years or more it's going to be challenging," Mr Gibson added. "It's going to have to be prudent investment, prudent management, the whole nine yards, so we need enhanced governance around the Fund going forward.

"Until we know the magnitude of the cost increase, and what it does from an actuarial standpoint, it's only theoretical. It's a step in the right direction for securing the fund. There's no doubt about that. They should actively consider extending the retirement age. France is battling with it right now. I expect to see that happen in the next three to five years."

NIB was forecast to lose $95m this year unless contribution rates are raised, with the pensions branch alone incurring a monthly $4m deficit. Myles Laroda, minister of state in the Prime Minister’s Office with responsibility for NIB, said in February 2023 that NIB’s pensions unit stands to pay out $48m more than it earns in 2023 if the average monthly deficit holds.

“The facts are this,” he said. “The NIB will pay out $27m each month in pensions. We’re collecting $23m. That leaves a shortfall of $4m a month. Times 12 and that’s $48m. We’ve not even considered the industrial benefits and other benefits that are being paid out. There are statements that have been made if you go on compliance, if you go and collect the outstanding that is pegged around $30m, that is still only one month of contributions.”

“Some of the issues as it relates to NIB are not things that we can blame anybody for. Can we blame our citizens for living longer? No. So if they are collecting their pension benefits that could be as much as 20 years, when it was about 10 years to 12 years in the beginning. This is where we are.

“We have a situation where next year will make 50 years since NIB has been there. We’ve had one [contribution rate] increase that was in 2010. People are living longer, they’re collecting more benefits. The ceiling has risen from $400 to $700 plus.”