The Tribune

By FAY SIMMONS

Tribune Business Reporter

jsimmons@tribunemedia.net

A Cabinet minister last night warned employers and workers to brace for a series of rolling National Insurance Board (NIB) contribution rate increases every two years with the first hike to be split equally between the two.

Myles Laroda, minister of state in the Prime Minister’s Office with responsibility for NIB, Myles Laroda told the House of Assembly during the 2023-2024 Budget debate that next year's rate increase, set to take effect on July 1, 2024, will be split 50/50 between employer and employee.

He said: ”The rate increase will be shared equally between the employer and the employee. For example, if the rate [increase] is 1.5 percent, the employer's portion rises from 5.9 percent to 6.65 percent. And the employee's portion rises from 3.9 percent to 4.65 percent. This is a small price to pay to secure our pensions for the future.”

Mr Laroda said legislation to give effect to the rate increase will be tabled later this year, there will be hikes every two years in a bid to rescue NIB, The Bahamas' social security system, and prevent its collapse. Contribution rates are currently 5.9 percent for employers and 3.9 percent for employees.

“At this time, it is considered to increase the contribution rate every two years for a period of time. A staggered implementation aims to allow businesses and workers adequate time to adjust their budgets accordingly, while still ensuring the system's sustainability in the future," Mr Laroda said. “We have one year to prepare for the rate increase, and legislation will be tabled in Parliament later this year to bring this into effect.”

He explained that the legislation will also give NIB more authority to pursue delinquent employers and improve record keeping requirements. The minister added: “Simultaneously, we intend to table changes to the NIB Act and regulations to strengthen enforcement and improve compliance. Too many employers and self-employed persons fail to abide by the law to submit their contribution records and pay the amounts due to NIB.

“We will give NIB more power to go after delinquent businesses. We all know that contribution records are required for NIB to process claims on time. These additional enforcement options would result in positive results and improve services to our claimants.”

NIB has collected $52m in contributions from government agencies for the year-to-date, with about $8m remaining to be paid. Mr Laroda maintained that the rate increase is an investment in NIB's future so that it stays viable for future generations.

He said: “It is crucial to focus on the bigger picture, the invaluable services NIB provides and its positive impact on our society. The contribution rate increase is an investment in the well-being of our fellow citizens and the strength and resilience of our nation as a whole.

“Let us remember that NIB stands as a testament to our commitment to one another, reflecting our shared responsibility for the welfare of our community. As this country's working citizens and builders, we are all called upon to do our part to ensure that NIB stays strong and viable for years to come.”

Mr Laroda said NIB’s benefit payments now exceed its contribution income. “The reality is we are paying out much more notwithstanding we are collecting $300m," he added. "If you're paying out $353m, that's on the benefits side alone. The overall impact of NIB on our country is evident from contributions of $24m in the 1980s to approaching $300m in 2022.

“Even more significant is the sharp increase in benefit payments to NIB’s contributors and dependents. These benefits have mushroomed from $8m in 1981 when the programme was in its infancy stages to $354m in 2022 as a mature scheme.

“Can you imagine the degradation and the displacement of our people that would have occurred if this $354m were not put in into our economy last year? The scheme survives and continues to serve its purposes as a social safety net for Bahamians from all walks of life”

Mr Laroda added that NIB has recorded an annual deficit since 2016, depleting the fund by over $350m in six years. He noted that a loss of this magnitude cannot be sustained long-term. "In the past NIB's income exceeded its expenses, resulting in the build up of its reserves peaking at $1.75bn in 2016," Mr Laroda said. "In 2016, the benefit expenses exceeded contributions by $14m in that year, and NIB recorded an overall deficit of $15.8m.

“Every year since, benefits have exceeded contributions, and the difference between the two continues to grow. In 2022, NIB’s reserves stood at $1.4bn so that within six years the reserves reduced by $350m. The deficits recorded by NIB continue into 2023; the budgeted deficit for this year is $97.6m. This is driven mainly by benefits exceeding contribution income by some $86m. This trend can cannot be sustained in the long-term.”

Mr Laroda said a 35 percent increase in the number of pensioners receiving benefits over the last decade translates to higher expenses for NIB, adding that the insurable wage ceiling is adjusted bi-annually which leads to more robust benefits for new pensioners.

He said: “Over the last ten years, the average number of pensioners being paid every month has increased by over 35 percent. This is driving the increase in benefit expenses, coupled with the fact that each year the average benefit per recipient increases as first-time pensioners are being paid higher benefits than in the prior years.

“NIB adjusts the insurable wage ceiling every two years. And this translates into higher benefits for those who pay at the highest ceiling.”