The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Prime Minister’s Office last night sought to quell fears that the total National Insurance Board (NIB) contribution rate will hit 26.3 percent in 2044 and become “equivalent to an income tax”.

Philip Davis KC and his officials, in a statement, said plans unveiled just hours earlier by Alfred Sears KC, the minister with Cabinet responsibility for NIB, to raise the total contribution rate by 1.5 percentage points every two years over the next two decades were not set in stone.

Asserting that Mr Sears was merely repeating recommendations contained in the latest actuarial review of NIB’s financial health, which called for similar phased-in increases of an even greater magnitude, the Prime Minister’s Office said such a glide path would be “a worst case scenario” and that no decision to raise contribution rates has been taken beyond the initial 1.5 percentage point increase set for July 1.

“An actuarial review of NIB recommended increasing the contribution rate not just this year, but every two years, for years to come,” Mr Davis’ office said. “Those recommendations were repeated today by Minister Sears. These continued rate increases would be required in a worst-case scenario. A decision has yet to be made beyond the initial 1.5 percent announced to commence on July 1, 2024.”

The Prime Minister’s Office release came shortly after Heather Maynard, NIB’s acting director, confirmed to Tribune Business that the series of 11 increases unveiled by Mr Sears in his mid-year Budget presentation would ultimately more than double NIB’s total contribution rate from the present 9.8 percent to 26.3 percent after July 1, 2044.

That would represent a 168.4 percent increase in the contribution rate - spread over a 20-year period - in a bid to ease the financial burden and strain this may impose on both businesses and working Bahamians. Ms Maynard also confirmed that, under this strategy, the contribution rate paid by workers will more than triple - rising from the current 3.9 percent of insurable wages to 12.15 percent.

Bahamian businesses, who presently face a 5.9 percent contribution rate, would see this jump to 14.15 percent by 2044 based on the series of 1.5 percentage point increases all being split evenly between employer and employee - meaning their respective shares will rise by 0.75 percentage points every two years.

“That is correct,” Ms Maynard said when presented with this newspaper’s calculations, which were originally forwarded to Mr Sears. “At July 2044, it will be at 26.3 percent, split 14.15 percent by the employer and 12.15 percent by the employee.” She added that these figures were confirmed by the actuaries.

She spoke after Mr Sears, in his House of Assembly address, certainly gave the impression that the full two-decade strategy had been approved by the Davis Cabinet. “NIB reform is not a matter of choice but a matter of necessity. We can no longer delay or ignore this issue, as it affects our present and future welfare. We have a collective responsibility to protect and preserve the National Insurance Board,” he argued.

“Therefore, effective the first Monday of July 2024, the contribution rate for NIB will be increased by 1.5 percent [percentage points] to be shared equally between the employer and the employee, and thereafter a 1.5 percent increase every two years from July 1, 2024 to July 1, 2044. Similarly, the same increase will be applied to self-employed persons and voluntarily insured persons.”

The Prime Minister’s Office’s statement, and the contrast with the nature and tone of the minister’s comments, will likely raise questions as to whether Mr Davis and Mr Sears are on the same page, and if the Government - having realised the potential backlash once the full magnitude of the planned NIB increases became known - has moved swiftly to contain any fall-out through proactive public relations.

Reaction, though, was quick. Peter Goudie, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) labour division head, and the private sector’s National Tripartite Council representative, branded the projected “long-term” NIB contribution rate of 26.3 percent - and respective employer and employee contributions - as “beyond my imagination” and “ridiculous”.

Suggesting that NIB should “look in their own back field”, instead of “ramming down our throats” huge contribution rate increases, he argued that the national social security system must do its part to reform by cutting expenses, potentially reducing the workforce and also potentially raising the retirement age.

Agreeing that July’s imminent 1.5 percent increase is needed to “keep NIB from the brink”, and prevent its $1.5bn reserve fund from becoming exhausted by 2028, Mr Goudie nevertheless told Tribune Business: “I didn’t think they need that much money.

“Maybe they want to have a look at their expenses, and maybe they want to look and see if they have too large a workforce. Maybe they could look at computerisation and modernisation instead of ramming this down our throats. Why don’t they stop hiring all the people they’ve been hiring at NIB for years? They have been bloated for years and the auditors have told them that.

“Why don’t they look in their own back field before passing it on to someone else?” Mr Goudie continued. “With that much of an increase, they need to cut back on their expenses. It’s as simple as that. There’s a lot of things they can look at.

“A lot of people have not saved money, so it would be a good idea to raise the retirement age. NIB needs to look in its own building. We need the [initial] 1.5 percent to keep us off the brink, but they need to have a hard look at themselves before they start passing the buck on to everyone else.

“Going to that percentage in the long-term is beyond my imagination, and they need to have a look at their own employment numbers and cost functions and reduce them. It’s ridiculous. That’s a ton of an increase, and they should have been doing smaller ones for years but nobody made the move.”

On July’s rise, Mr Goudie added: “We have to do it because we don’t want to lose NIB, so we’re going to have to live with it.” The Bahamas Chamber of Commerce and Employers Confederation, in its own statement, echoed Mr Goudie by saying it was “regrettable” action was not taken earlier to ensure NIB’s continued solvency as this has made the magnitude of the required correction even greater.

The business advocacy group, noting the strategy unveiled by Mr Sears, said: “We are concerned that this will possibly increase the cost of doing business in the country but recognise that it is required to ensure survival of the fund, which so many Bahamians depend on.

“It is regrettable that action was not taken earlier to prevent such sharp increases since the potential financial deficit of the fund has been discussed in the past. We urge the Government and NIB to explore all other means which may be employed to ensure the viability of the fund.

“We are also hopeful that increased economic activity can cause the projected rate to be reduced sooner than the current timeline suggests. We will be engaging our members in the coming days to obtain their reaction to the increase.”

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 in its depletion estimate, on September 11, 2002, was then-NIB chairman and now-prime minister, Mr Davis. Now, with just four years left to the NIB Fund’s total depletion in 2028, the magnitude of the correction is much more severe for firms and workers still grappling with COVID recovery, the high cost of living, and multiple other challenges.

However, the strategy unveiled by Mr Sears is not markedly different than that outlined in NIB’s last actuarial review by the International Labour Organisation (ILO) that was delivered in 2022. While the proposed 1.5 percentage point rate increases are less than the 2 percent called for in that report, they are spread out over a longer time period to presumably make it easier for companies and workers to adjust.

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. If implemented, that would have taken NIB’s total contribution rate to 25.8 percent by 2036 - a figure not dissimilar to the now 26.3 percent.

“An increase of the contribution rate by 2 percent (over the existing 9.8 percent) every two years starting on July 1, 2022, and ending on July 1, 2036, could restore the short and medium-term financial sustainability of the scheme,” the last actuarial report said.

“Starting in 2029, the required annual contribution rate to pay for all expenditures becomes the pay-as-you-go (PAYG) rate. As an illustration, the contribution rate will have to increase from 9.8 per cent to 16.9 per cent in 2029, and will reach 32.3 per cent in 2078.” Based on the glide path unveiled by Mr Sears, the total NIB contribution rate will be 14.3 percent in 2029.

The Prime Minister’s Office, in its statement last night, said NIB reforms will extend beyond mere contribution rate increases. “The July 2024 rate increase announced earlier today by Minister Sears will be accompanied by comprehensive reforms, to improve customer service, reduce fraud and inefficiencies, strengthen financial accountability, transform the digital infrastructure, reduce administrative costs, improve the investment strategy, and make sure NIB is there for Bahamians when they need it,” it said.

“Social security and insurance funds such as NIB in countries the world over are facing the same challenges we are due to changing demographics, with fewer workers making contributions.... As we move forward with comprehensive reforms, policymakers will continuously evaluate the efficiencies gained and consider the best path to delivering sustainability.

“We advised last year that a rate increase would be implemented this July in order to provide advance notice. We are aware of the burdens of the high cost of living, made worse by a global inflation crisis, and policy decisions will continue to reflect consideration of what is in the best interests of the Bahamian people.” The Prime Minister’s Office last night sought to quell fears that the total National Insurance Board (NIB) contribution rate will hit 26.3 percent in 2044 and become “equivalent to an income tax”.

Philip Davis KC and his officials, in a statement, said plans unveiled just hours earlier by Alfred Sears KC, the minister with Cabinet responsibility for NIB, to raise the total contribution rate by 1.5 percentage points every two years over the next two decades were not set in stone.

Asserting that Mr Sears was merely repeating recommendations contained in the latest actuarial review of NIB’s financial health, which called for similar phased-in increases of an even greater magnitude, the Prime Minister’s Office said such a glide path would be “a worst case scenario” and that no decision to raise contribution rates has been taken beyond the initial 1.5 percentage point increase set for July 1.

“An actuarial review of NIB recommended increasing the contribution rate not just this year, but every two years, for years to come,” Mr Davis’ office said. “Those recommendations were repeated today by Minister Sears. These continued rate increases would be required in a worst-case scenario. A decision has yet to be made beyond the initial 1.5 percent announced to commence on July 1, 2024.”

The Prime Minister’s Office release came shortly after Heather Maynard, NIB’s acting director, confirmed to Tribune Business that the series of 11 increases unveiled by Mr Sears in his mid-year Budget presentation would ultimately more than double NIB’s total contribution rate from the present 9.8 percent to 26.3 percent after July 1, 2044.

That would represent a 168.4 percent increase in the contribution rate - spread over a 20-year period - in a bid to ease the financial burden and strain this may impose on both businesses and working Bahamians. Ms Maynard also confirmed that, under this strategy, the contribution rate paid by workers will more than triple - rising from the current 3.9 percent of insurable wages to 12.15 percent.

Bahamian businesses, who presently face a 5.9 percent contribution rate, would see this jump to 14.15 percent by 2044 based on the series of 1.5 percentage point increases all being split evenly between employer and employee - meaning their respective shares will rise by 0.75 percentage points every two years.

“That is correct,” Ms Maynard said when presented with this newspaper’s calculations, which were originally forwarded to Mr Sears. “At July 2044, it will be at 26.3 percent, split 14.15 percent by the employer and 12.15 percent by the employee.” She added that these figures were confirmed by the actuaries.

She spoke after Mr Sears, in his House of Assembly address, certainly gave the impression that the full two-decade strategy had been approved by the Davis Cabinet. “NIB reform is not a matter of choice but a matter of necessity. We can no longer delay or ignore this issue, as it affects our present and future welfare. We have a collective responsibility to protect and preserve the National Insurance Board,” he argued.

“Therefore, effective the first Monday of July 2024, the contribution rate for NIB will be increased by 1.5 percent [percentage points] to be shared equally between the employer and the employee, and thereafter a 1.5 percent increase every two years from July 1, 2024 to July 1, 2044. Similarly, the same increase will be applied to self-employed persons and voluntarily insured persons.”

The Prime Minister’s Office’s statement, and the contrast with the nature and tone of the minister’s comments, will likely raise questions as to whether Mr Davis and Mr Sears are on the same page, and if the Government - having realised the potential backlash once the full magnitude of the planned NIB increases became known - has moved swiftly to contain any fall-out through proactive public relations.

Reaction, though, was quick. Peter Goudie, the Bahamas Chamber of Commerce and Employers Confederation’s (BCCEC) labour division head, and the private sector’s National Tripartite Council representative, branded the projected “long-term” NIB contribution rate of 26.3 percent - and respective employer and employee contributions - as “beyond my imagination” and “ridiculous”.

Suggesting that NIB should “look in their own back field”, instead of “ramming down our throats” huge contribution rate increases, he argued that the national social security system must do its part to reform by cutting expenses, potentially reducing the workforce and also potentially raising the retirement age.

Agreeing that July’s imminent 1.5 percent increase is needed to “keep NIB from the brink”, and prevent its $1.5bn reserve fund from becoming exhausted by 2028, Mr Goudie nevertheless told Tribune Business: “I didn’t think they need that much money.

“Maybe they want to have a look at their expenses, and maybe they want to look and see if they have too large a workforce. Maybe they could look at computerisation and modernisation instead of ramming this down our throats. Why don’t they stop hiring all the people they’ve been hiring at NIB for years? They have been bloated for years and the auditors have told them that.

“Why don’t they look in their own back field before passing it on to someone else?” Mr Goudie continued. “With that much of an increase, they need to cut back on their expenses. It’s as simple as that. There’s a lot of things they can look at.

“A lot of people have not saved money, so it would be a good idea to raise the retirement age. NIB needs to look in its own building. We need the [initial] 1.5 percent to keep us off the brink, but they need to have a hard look at themselves before they start passing the buck on to everyone else.

“Going to that percentage in the long-term is beyond my imagination, and they need to have a look at their own employment numbers and cost functions and reduce them. It’s ridiculous. That’s a ton of an increase, and they should have been doing smaller ones for years but nobody made the move.”

On July’s rise, Mr Goudie added: “We have to do it because we don’t want to lose NIB, so we’re going to have to live with it.” The Bahamas Chamber of Commerce and Employers Confederation, in its own statement, echoed Mr Goudie by saying it was “regrettable” action was not taken earlier to ensure NIB’s continued solvency as this has made the magnitude of the required correction even greater.

The business advocacy group, noting the strategy unveiled by Mr Sears, said: “We are concerned that this will possibly increase the cost of doing business in the country but recognise that it is required to ensure survival of the fund, which so many Bahamians depend on.

“It is regrettable that action was not taken earlier to prevent such sharp increases since the potential financial deficit of the fund has been discussed in the past. We urge the Government and NIB to explore all other means which may be employed to ensure the viability of the fund.

“We are also hopeful that increased economic activity can cause the projected rate to be reduced sooner than the current timeline suggests. We will be engaging our members in the coming days to obtain their reaction to the increase.”

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 in its depletion estimate, on September 11, 2002, was then-NIB chairman and now-prime minister, Mr Davis. Now, with just four years left to the NIB Fund’s total depletion in 2028, the magnitude of the correction is much more severe for firms and workers still grappling with COVID recovery, the high cost of living, and multiple other challenges.

However, the strategy unveiled by Mr Sears is not markedly different than that outlined in NIB’s last actuarial review by the International Labour Organisation (ILO) that was delivered in 2022. While the proposed 1.5 percentage point rate increases are less than the 2 percent called for in that report, they are spread out over a longer time period to presumably make it easier for companies and workers to adjust.

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. If implemented, that would have taken NIB’s total contribution rate to 25.8 percent by 2036 - a figure not dissimilar to the now 26.3 percent.

“An increase of the contribution rate by 2 percent (over the existing 9.8 percent) every two years starting on July 1, 2022, and ending on July 1, 2036, could restore the short and medium-term financial sustainability of the scheme,” the last actuarial report said.

“Starting in 2029, the required annual contribution rate to pay for all expenditures becomes the pay-as-you-go (PAYG) rate. As an illustration, the contribution rate will have to increase from 9.8 per cent to 16.9 per cent in 2029, and will reach 32.3 per cent in 2078.” Based on the glide path unveiled by Mr Sears, the total NIB contribution rate will be 14.3 percent in 2029.

The Prime Minister’s Office, in its statement last night, said NIB reforms will extend beyond mere contribution rate increases. “The July 2024 rate increase announced earlier today by Minister Sears will be accompanied by comprehensive reforms, to improve customer service, reduce fraud and inefficiencies, strengthen financial accountability, transform the digital infrastructure, reduce administrative costs, improve the investment strategy, and make sure NIB is there for Bahamians when they need it,” it said.

“Social security and insurance funds such as NIB in countries the world over are facing the same challenges we are due to changing demographics, with fewer workers making contributions.... As we move forward with comprehensive reforms, policymakers will continuously evaluate the efficiencies gained and consider the best path to delivering sustainability.

“We advised last year that a rate increase would be implemented this July in order to provide advance notice. We are aware of the burdens of the high cost of living, made worse by a global inflation crisis, and policy decisions will continue to reflect consideration of what is in the best interests of the Bahamian people.”