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By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A FORMER union leader says he recommended that civil service pensions be made contributory almost two decades ago as financial analysts warned “it’s all coming home to roost” over a forecast $3.5bn hole.

John Pinder, the ex-Bahamas Public Services Union (BPSU) head, told Tribune Business that in 2005 he urged then-prime minister Perry Christie to make the necessary legal and regulatory changes that would mandate new civil service hires start contributing to the funding of their own retirement.

“While I was president of the union, I signed an industrial agreement with Perry Christie, and I recommended to start a contributory pension fund,” he recalled. “From 2005 I’d recommended they should introduce a contributory pension plan for new persons coming into the public service.”

Now, some 19 years later, the Government has finally circulated for consultation draft legislation to give effect to such a scheme with unfunded civil service pension liabilities already estimated by KPMG Advisory Services to exceed $2.2bn.

The Bill, if enacted as is, will create a contributory pension scheme called the Public Service Contributory Pensions Fund. Its members will include all new civil service hires after it is passed by Parliament, and becomes law, once they have completed their six-month probation, while all existing public officials who have held pensionable positions for less than eight years will also be transferred to the contributory plan.

Mr Pinder, though, told this newspaper that the eight year threshold should be raised by two years to mandate that only civil servants in pensionable positions for less than ten years be transferred to the proposed contributory scheme. This, he added, would align with the present position where public servants can cash in their gratuity after ten years.

“Eight years is putting them at a disadvantage,” Mr Pinder argued. “They should make it ten years. At ten years you should have the right to cash in your gratuity and join the contributory pension. That’s the position now. That amendment should be at ten. You can cash in what you build up as a gratuity if you move on.”

The former BPSU president and labour director, who also stood as the FNM’s Fox Hill candidate in the last general election, backed the intention to make the new contributory pension transferable or portable should civil servants switch jobs within the public service or move outside.

And he also supported the Government’s plan to bring the employees of state-owned enterprises (SOEs) and government agencies, as well as civil servants working directly for central government, into the proposed Public Service Contributory Pensions Fund.

“If the Government has it all under one umbrella it makes it easier for persons transferring to get the correct pension at the end of their career,” Mr Pinder said, disclosing that this has been a problem for public sector employees who switch agencies.

New and newer employees at what are described as ‘Approved Authorities’ in the Bill will also participate in the scheme if the legislation is passed as currently laid out, which means thousands will be impacted.

Those who join these ‘Authorities’ after the Bill is passed into law, and becomes an Act, or who have been employed for less than eight years will automatically join the contributory plan. Again, those who have been employed for more than eight years can elect to participate voluntarily, with the ‘Authorities’ involved including the likes of the Central Bank, Bahamasair and the Public Hospitals Authority (PHA).

The list of ‘Approved Authorities’ features the National Insurance Board (NIB); University of The Bahamas; Bahamas Agricultural and Industrial Corporation (BAIC); Hotel Corporation of The Bahamas; Water and Sewerage Corporation; Bahamas Development Bank; Bahamasair Holdings; the Royal Bahamas Defence Force; Bahamas Maritime Authority; and the Public Hospitals Authority (PHA).

Others named in the Bill include the Hospitals and Health Care Facilities Licensing Board; National Museum of The Bahamas; the Airport Authority; National Art Gallery of The Bahamas; Nassau Airport Development Company (NAD); Bahamas Mortgage Corporation; Insurance Commission of The Bahamas; Utilities Regulation and Competition Authority (URCA); Sports Authority and National Training Agency.

Larry Gibson, chief operating officer at CG Atlantic Pensions, told Tribune Business that public sector pension reform is likely to be “really high” on the Government’s priority list because “that liability must be massive”.

“At least they seem to be addressing the problem or recognising it,” he added. “There’s a whole confluence of difficult decisions that the Government must make that are all coming to a head at one time but, there again, we should not be surprised.

“We used to brag about our demographics and the large number of young people, but we never gave them training, we never diversified in terms of jobs; everybody cannot be accountants, lawyers or doctors. Now it all seems to be coming home to roost at once.”

Mr Gibson said the Government’s unfunded pension liabilities are “a huge problem if they don’t solve it”, adding that while the contributory pension reforms will slow down and stop the multi-billion liabilities from expanding - at least at the present rate - they will not relieve the obligations to already- retired and existing long-serving officials.

“All this does is stop it accumulating because you are now contributing,” he added, “but you still have to pay that $2bn-plus.... They’re going to have to allow pension funds to invest overseas because the local market cannot absorb this.”

The draft Pensions Bill 2023 will end the present ‘pay-as-you-go’ pension scheme enjoyed by the Government’s near-20,000 existing civil servants through requiring them - for the first time - to contribute to financing their retirement from their own salaries. However, all those with more than eight years’ service in pensionable positions will remain with the existing arrangement unless they opt to switch.

The Ministry of Finance, explaining the back- ground to the proposed legal reforms, revealed that financing the current system will increase the annual burden imposed on Bahamian taxpayers by 32.7 percent or $54m over the next six years as growing numbers of civil servants retire and become pension-eligible. The yearly funding bill is forecast to grow from $165m at present to $219m by 2030.

Civil service pensions are currently 100 percent financed by taxpayers through the annual Budget, and the Ministry of Finance said: “During the past two years, the Government’s mission has been to prioritise the containment of growth in relation to pension liabilities, aimed at reducing the burden on public sector finances. Currently, the Government carries an unfunded liability of more than $2bn.

“Pension consultant, KPMG Advisory Services, conducted a pension reform feasibility study on the Government’s pension scheme in 2013 which was revised in 2022. This study estimated pension liabilities for public sector employees would accumulate to $2.2bn between 2013 and 2020, and projected an increase to $3.5bn by 2030.”

As for annual payouts to civil service retirees, the Ministry of Finance added: “Future cash outflows are also projected to increase significantly from

approximately $165m currently to $219m by 2030 - including both pension payments and gratuities.

“In addition, Government-owned corporations have similar defined benefit pensions with annual cash outflows of approximately $10m. Given these alarming statistics, measures must taken to provide a sustainable solution to bring about reforms to the public sector pensions plan.”

Pension payments for the current 2023-2024 fiscal year were estimated at $134.744m, with gratuities adding a further $33.776m, to bring the total taxpayer- funded outlay to $168.52m. The latter figure is forecast to steadily increase to $173.44m in 2024-2025, and then to $175.413m the following fiscal year.

Civil servants in pensionable positions for more than

eight years can voluntarily choose whether to join the contributory scheme or retain their current arrangements. The mandatory contribution rate has been set at 3 percent of a plan member’s monthly salary, with the Government making a matching 3 percent payment.

Workers can also choose on their own accord, to raise the contribution rate for their portion to a maximum 10 percent although this will not be matched by the Government. The Public Service Contributory Pensions Fund will be overseen by a Board, which will appoint an independent investment manager fund administrator and custodian to manage and safeguard pension plan assets.