Factors which Justify Contribution Increases to The Bahamas National Insurance Board (NIB) Fund

Increased Contributions to the National Insurance Board Plan for Employers and Employees are Scheduled to take effect July 2024, and are Proposed to Increase every two years thereafter until the Fund reaches a Sustainable Position...

NASSAU, The Bahamas – Contributors to the National Insurance Board Plan will have one year to prepare for a contribution rate increase that is scheduled for July 2024.

The rate increase will mark just the second increase -- the first was by 1 per cent in 2010 which coincided with the implementation of the permanent phase of the unemployment benefit -- in almost 50 years of the Fund’s existence.

The increase will be shared equally between employers and employees.  For example, if the rate increases by 1.5%, the employers' portion rises from 5.9% to 6.65%, and the employees' portion increases from 3.9% to 4.65%.

In the first year, paying the minimum weekly wage of $260, will increase the employers' portion from $15.34 to $17.29.  Employees' contribution payments on the minimum weekly wage will increase from $10.14 to $12.09.  For both the employer and employee, this represents a difference of $1.95 per week.

For monthly salaries on the minimum wage of $1,127.67, employers and employees will pay a difference of $8.45 per month.

“Madame Speaker, this is less than the cost of a meal at any of our fast food restaurants.  This is a small price to pay to secure our pensions for the future,” Minister of State in the Office of the Prime Minister with responsibility for National Insurance, the Hon. Myles K. LaRoda noted.

Employers' weekly payment on a ceiling of $740.00 will increase from $43.66 to $49.21.  Employees' contribution payments on the ceiling of $740.00 will increase from $28.86 to $34.41.  For both the employer and employee, this represents a difference of $5.55 per week.  For monthly salaries on the ceiling of $3,207.00, employers and employees will pay a difference of $24.05.

Addressing Parliament during his Contribution to the 2023/24 Budget Debate, State-Minister LaRoda said the increase was due to a number of factors.

“For some time now, there has been discussion in the public about the state of NIB.  Much of this discussion emanated from the 11th Actuarial Review conducted by the International Labor Organisation (IL O) in December 2018.  I tabled the report in these Honourable Chambers last year.

“The Report predicts that the NIB fund will be depleted by 2028 based on its current benefits package and contribution rate and considering the projected population demographics.  Key among these are: A lower fertility rate than in past decades refers to the number of children each woman has.  This rate was about two children historically and is projected to be 1.7 children for most of the period under review, and an increase in life expectancy; our people are simply living longer, and this trend continues over the projection period that the report covers (60 years).  On average, pensioners are expected to live four years longer than at present.

“What does this translate into?  Today we have approximately four contributors for each pensioner.  By 2078, it is projected that we will have 1.4 contributors for each pensioner, a sharp decline.  Looking at it another way, while persons over 65 made up approximately 8% of the population in 2020, by the end of the review period (2078), retirees are projected to make up 26% of the population.”

State-Minister LaRoda said compared with Caribbean Social Security programmes, NIB has one of the lowest rates, but offers the same, or more benefits, of those programmes with the exception of Barbados.

NIB offers a total of eleven Benefits as income replacement for those who are unable to work or have work-related injuries; provides assistance to individuals who do not have sufficient contributions to qualify for a benefit; and an unemployment benefit – a branch of national insurance now being considered for inclusion in other Caribbean countries.

Additional offerings include: Pension payments of over $26 million each month to over 44,000 pensioners; Injury Benefit to workers injured on the first day on the job who may have never paid into National Insurance; Bahamian mothers have access to Maternity Benefits for each live birth—a crucial support system for both the mother and child.

“Most countries do not provide an unemployment benefit, but their contribution rate exceeds that of NIB Bahamas,” Mr. LaRoda continued.  “Across the region, the contribution rate averages 12% (NIB is under 10), and several countries already have approved contribution rate increases in place over the next few years.”

Mr. LaRoda said of even greater significance is the sharp increase in benefit payments to NIB's contributors and dependents.  These benefits had mushroomed from $8 million in 1981, when the programme was in its infancy stage, to $354 million in 2022 as a mature scheme.

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

State-Minister LaRoda said over the last ten years, the average number of pensioners being paid every month has increased by over 35%.

“This,” he said, “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 prior years.  As you know, NIB adjusts the insurable wage ceiling every two years, and this translates to higher benefits for those who pay at the higher ceiling.”

State-Minister LaRoda said in the past, NIB's income exceeded its expenses resulting in the build-up of its reserves - peaking at $1.75 billion in 2016.  In 2016, the benefits expenses exceeded contribution income by $14 million; in that year, NIB reported an overall deficit of $15.8 million.  Every year since, benefits have exceeded contributions, and the difference between the two continues to grow. In 2022 the NIB's reserves stood at $1.4 billion.

The deficits recorded by NIB continue into 2023.  The budgeted deficit for this year is $97.6 million, driven mainly by benefits exceeding contributions by $86 million.

“This trend can only be sustained for a short time,” Mr. LaRoda told Parliament.

State-Minister LaRoda said the ILO Report recommended an immediate, sustained, and systematic increase in the contribution rate to secure the fund in the short term.

“This call for an increase in the rate was also anticipated from earlier actuarial reports.  It also identifies other options that can be considered for the long-term design of the plan.  At this time, it is considered to increase the Contribution Rate every two years for some 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,” State-Minister LaRoda added.

Source

The failings of the National Insurance Board (NIB) are based primarily on political interference

We need a radical change to the way the National Insurance Board (NIB) is run

A Response to Lindon Nairn's NIB proposal

By Norman Trabulsy Jr

While I am in wholehearted agreement with Lindon Nairn regarding the need for immediate and drastic action to fix NIB, I am not convinced by his proposed solutions.

Firstly, yes, the failings of NIB are based primarily on “political interference”, as he states.  Now, I would ask what is included in Mr. Nairn's idea of political interference?  Is it outright misappropriation of funds?  Is it by using NIB as a slush fund?  Is it by failing to look at the actuarial trends and responding accordingly?  Is it by political appointments of upper management who are wholly unqualified for these positions?  Is it by political interference in the collection and distribution of benefits?  Is it by political interference of the laws governing NIB, and the oversight required?  Is it by deliberate lack of accountability, and the pace of technological innovation?

I am not convinced that every public service should be outsourced to the private sector.  Private profits, as well documented in health care for instance, is what is driving the rapidly rising cost of health care.

The U.S. is a perfect example of this.  U.S. government Medicare administrative costs are 1% - 2% of revenues.  Private health insurance companies, such as our Colina, have 15%-20% administrative costs. 

It is a fact that most bankruptcies in the U.S. are because of health care costs.  Would God approve?

What some people call reckless inefficiency in government is simply called reasonable corporate profiteering by others.  Seems most of us have drank the private sector Kool Aid.

Mr. Nairn says, “ Until recently, any private citizen could simply put money into fixed deposit accounts at any financial institution and generate multiple times NIB's net earnings.”

Judging by the statistics available to all of us, what percentage of our private, average Bahamian citizens can put any money into a bank at all?  As to my knowledge, the majority of Bahamians are living pay check to pay check - unable to cover a $400.00 emergency.

Some things in this world, especially health care, should not be left to the “free market”.  Granted, here in The Bahamas we have little visionary and educational exposure to models different from our guiding light rent seekers to the north.

Not exactly a good example of Christianity in action, is it?

In my lifetime, I would be hard pressed to give examples where the private sector really did out perform previously government run services, in an educated and free society.

Instead of our government hiring the same professionals who have successfully run other similar institutions, we chose to place political hacks who have neither the intelligence, education or integrity required to lead, and then we wonder why that institution has failed.

Is this not our history in a nutshell?

You want a well functioning enterprise?  Then hire a qualified person to lead it.  Just like the private sector does.  Pay them well.  Let them hire and fire as they see fit, and leave them alone.  We will then get acceptable results.  Just like the private sector does.  Is this such a hard concept to understand?

The “heavy lifting” Mr. Nairn speaks of is not in privatizing NIB, rather it is in recognizing our own shortcomings and failings, and fixing them.  Isn't this always the heavy lifting we require?

In my estimation, not every human good or government service requires private profit to succeed.

Batelco was sold so that we would ostensibly get more efficiency and better service.  Can anyone tell me that selling BTC was not a deal made behind closed doors that enriched a handful of greedy politicians and their private sector friends?

Has service improved?  Does The Bahamas benefit from the sale of BTC in any way?

In fact, I would argue that a truly Christian perspective would see NIB, health care, life saving drugs, minimum food allowances, as God given rights that should not be touched by the money changers.

The very idea that a “company” should profit from health care should be offensive to a true, right thinking Christian.

Let the private sector gamble to their hearts delight.  But, when they cross over into essential human services, we need to let them sit small.

I agree with Mr. Nairn that we need a radical change to the way NIB is run.  That much is clear.  However, I fear that NIB, like BTC, will simply become a revenue stream for a handful of millionaire and billionaire corporate executives who have little concern for our people, and every concern for their private profits.

Norman Trabulsy Jr.
Mangrove Cay, Andros

The Bahamas government has failed to put forward a compelling argument for an increase in the National Insurance Board (NIB) rates

Why is the National Insurance Board (NIB) in its current state?

By Lindon Nairn

The government has failed to put forward a compelling argument for an increase in the National Insurance Board (NIB) rate.

Yes, arguments such as “pension payouts exceed contributions” appear strong on their face, but they fail to tell the whole story much less point to a sustainable solution.

It is quite possible that an increase in NIB’s rate is necessary, but such a decision should follow disclosure of what drove NIB to this position and how NIB might be dramatically restructured to achieve maximum sustainable results.

Why is NIB in its current state?  First, new and improved benefits were regularly added — from inception — without any sustainable plans to pay for them.

While insureds enjoyed those better benefits, it was irresponsible to put them into effect without first ensuring that appropriate steps were taken to fund them.

Administrations took such reckless steps to garner political support without regard for the long-term implications of their actions.

Second, alarmingly, NIB’s net earnings, excluding contributions made and benefits paid (”net earnings”) is barely higher than one percent of its total assets.

(This net earnings return on assets is derived from 2019 annual financial statements.  It is likely that it has fallen since.)

Until recently, any private citizen could simply put money into fixed deposit accounts at any financial institution and generate multiple times NIB’s net earnings.

That fact underscores the high administrative costs associated with running NIB, its low gross earnings and, most importantly, it demonstrates that ultimately NIB provides no net real value to its contributors.

Third, based on actuarial reports, the pension shortfall is due in part to lower than expected population growth.

To me, a pension plan that is reliant on ongoing population growth, even though a common practice globally, has inherent elements of a pyramid scheme.

Of course, it is accepted that lower than projected growth could impact unit costs.

Finally, since its founding, NIB has had many successes, however, in the current technological and economic climate, NIB has become anachronistic.

It has not kept pace with the times and no doubt that is due largely, if not entirely, to political interference.  One can point to much evidence of inapposite political engagement, but few speak more loudly to that than the reshuffling of NIB’s board of directors every time a new party wins a general election.

How might NIB be fixed?

Let me state upfront that these recommendations are both radical and incomplete.

They are intended to offer only a fragrance of what might be done.

NIB has at least four broad divisions: pension, unemployment, sickness and drugs.

For the purposes of contributions, administration and law, with the exception of sickness and drugs, those areas should be completely distinct.

Those benefits are very different creatures and managing them together covers deficiencies and hides opportunities.

NIB’s administration of pension should cease.

Instead, established private entities that meet specific criteria should be allowed to manage contributors’ pensions.

The enabling legislation should include controls such as linkage to business license and the eventual movement to personal savings accounts (PSAs).

Regarding the latter, contributors under a certain age should immediately move to PSAs.

Whether or when such a step can be taken will depend on what impact it might have on the current actuarially computed shortfall, which could crystallize and thereafter weigh negatively on the national accounts.

It is acknowledged that transitioning away from the current model requires heavy lifting.

Furthermore, with the new structure, a number of incentives designed to increase employees’ and even employers’ contributions could be introduced.

Given that the above action will increase net earnings by 300 percent to 700 percent, the actuarially computed liability should fall dramatically.

Today, I am afraid there is no need for NIB to itself administer a sickness and drug plan.

There are four local companies capable of providing those services at costs well below and efficiency considerably above what NIB will ever likely achieve.

As such, NIB should engage a private entity to administer most, if not all, aspects of its sickness and drug benefits plan.

With that said, the administration and other charges by private entities would require prudent and intense evaluation.

While a portion of what is now NIB’s employer and employee contributions should go to employees’ pension accounts as outlined above, the remainder should go into the unemployment and sickness and drug pools.

The management of those categories will likely reveal underfunding and the need for incremental contributions.

It will aid transparency and help policymakers and beneficiaries to be more realistic with respect to benefits.

The above moves will make a substantial amount of the resources deployed by NIB superfluous.

As for NIB’s staff, they should be offered an unprecedented early retirement package — up to three years.

That will not have long-term deleterious effect on the scheme.  NIB’s redundant administrative buildings and other assets should be sold.

It is important to re-emphasize that the above addresses only a handful of the considerations that have to be made.

This is a complex matter requiring the engagement of professional groups from various disciplines.

The status quo, including blindly raising rates, is harmful to our economy and by itself does not assure sustainability. Drastic changes are mandatory.

— Lindon Nairn

Source 

Let’s get real on redeeming the National Insurance Board (NIB) fund, Minister Myles LaRoda

Let’s get real with National Insurance, Minister Myles LaRoda 

By Dennis Dames

Minister of State in the Office of the Prime Minister with responsibility for the National Insurance Board (NIB), Myles LaRoda, has been talking a lot lately about increasing contributions of employers and employees in order to stabilize the NIB fund.

That is an impractical proposition by itself in my view as the NIB fund is already in a very critical state, and employers and employees are presently paying a combined 9.8 percent!

How much higher does any sensible government thinks that that rate can realistically and practically increase without serious financial ramifications for the employer and employee?

The minister stated that the government is in no position to assist NIB financially.  What nonsense!

NIB’s problem has always been poor governance and a lack of prudent vision from its inception, in my humble opinion.

Too much political interference and sweetheart jobs over the decades have contributed significantly to the deplorable state of the NIB fund today.

Add the issue of inept management, over-staffing and political crony jobs, and we get an even grimmer picture of the depressing and ongoing disgraceful state of the rapid erosion of the NIB fund.

The government must find a way to become a partner in the rescue of the NIB fund, Minister LaRoda.  Let’s start with reducing the government’s travel budget, for example.

We live in the 21st Century and technological age where we can show some international leadership, and encourage and persuade our respective global counterparts to have more conferences online.  We can use the savings from the elimination of unnecessary state, political and sweetheart travelling to enhance the NIB investment fund.

Let’s stop acting brand new and talking fool like we just realize that more and more of us are living longer, and are thus putting a strain on the NIB fund by collecting our well deserved monthly pension checks.

Let’s get real on redeeming the NIB fund, Minister LaRoda.

Now is the time for the government of The Bahamas to show real political and executive leadership in the salvation of the NIB fund by letting the people know what the government’s financial contribution is going to be until the NIB fund is put in to a healthy position once and for all - for the future posterity.

The National Insurance Board (NIB) and the growth and development of the modern Bahamas

In its 40 Years, NIB has Fueled National Growth

By Gena Gibbs:


NASSAU, The Bahamas – In his address of the National Insurance Board’s 40^th Anniversary Church Service at Evangelistic Temple on Sunday, Minister of Labour, National Insurance and the Public Service, the Hon. Shane Gibson illustrated the significant role NIB has played in the overall growth and development of The Bahamas.

He expounded saying, “we’ve not only assisted with the benefits paid to contributors, we’ve assisted in building dozens of clinics all over The Bahamas.  We’ve assisted in constructing many Government facilities.  We’ve assisted with unemployment benefits.  And we are now on the way to introducing a National Health Insurance scheme, which would mean universal healthcare for all Bahamians, throughout the length and breadth of The Bahamas.”

Acknowledging the significant milestone of 40 years, Minister Gibson said: “We pause to reflect on and access the National Insurance Board as an Institution, as a movement, and as a foundation pillar of our modern Bahamas.”

NIB was created to administer the country’s social security programe, and first opened its doors on October 7, 1974.   Minister Gibson outlined its history and development since then, noting that Prime Minister the Rt. Hon. Perry Christie, also present at the service, was the third Minister of National Insurance, and among the first Ministers appointed to National Insurance during the period of 1977 to 1982, just three years after the program was introduced.

Mr. Gibson stated: “In the historical context of The Bahamas, this was the immediate post Independence period when expectations in the social, economic and political context were very high.  It was a time when the Government of the Bahamas had to be seen to be delivering on the promises and aspirations that drove the movement to Independence.

“But as history has proven, time and again, political freedom gained from a struggle is not an end in itself, but rather a means to an end.  In The Bahamas, we dreamt of and aspired to education for all of our people, access to basic healthcare, non-discrimination in employment opportunities, and social mechanisms that would allow and give us some measure of dignity when things become rough, and a normal means to earn an income uninterrupted.”

Minister Gibson said that to its credit, the Bahamas Government had seen the need for a comprehensive system of social security, and a small group of persons in The Bahamas was charged with developing a social security scheme that would provide some acceptable form of income replacement for workers of the country, and their dependents, from the cradle to the grave.

“And this work was completed with the passage of the National Insurance legislation in 1972.  I think the point of then and now would best illustrate the phenomenal growth of the scheme.  At the start of the various programs under the National Insurance, short-term benefits were paid at a maximum rate of $54 per week, long-term benefits were paid at a rate of $26 per month, and funeral benefits, one-time payment, was $200,” said Minister Gibson.

“Old age, non-contributory pension, which was paid when insufficient or no contributions had been made, was $26 per month.  At the end of its first three years, National Insurance had collected some $58 Million in contributions; had paid out over $6 Million, as Benefits assistance; and had a reserve fund of some $52 Million.

Minister Gibson said that no one at the time could imagine how significant NIB would grow to become over the years.

“Today, in contrast to its humble, but ambitious beginnings, NIB at the end of its last financial year 2013 had accumulated reserves of some $1.6 billion.  Its contribution income for the same year was reported at $229 million.  While its benefits expenditure for 2013 was some $222 million,” said Minister Gibson.

“It also realized an investment of some $86.3 million during the period.  Additionally, maximum monthly long-term benefits and weekly short-term benefits payments have increased on average of 63-fold and seven-fold respectively, since 1972.” 

For its achievements, Minister Gibson congratulated the employees of NIB, “in particular those long serving employees who would have made a significant contribution over the years.  And even though persons may say they were well rewarded, I can tell you they have made many sacrifices in making sure that you get the quality service that you do get from NIB.  And so we thank them and we congratulate them.”

Minister Gibson then introduced Prime Minister Christie as one of the most socially conscious Prime Ministers in the Commonwealth of The Bahamas over the last 40 years, who has been there from the beginning and like NIB, is also celebrating 40 years serving the Bahamian people.

Senior Pastor, Rev. Dr. Vaughan Cash welcomed NIB Board members, executive management, honourees, and staff attending the service to launch National Insurance Week.

October 07, 2014

Bahamas.gov.bs

Audit Report: The National Insurance Board (NIB) Salaries and Bonuses were Unauthorised

Report: NIB Salaries and Bonuses Unauthorised

By Ianthia Smith
Jines Bahamas




The National Insurance Board (NIB) audit report noted that former Chairman of the NIB Board of Directors Patrick Ward increased suspended Director Algernon Cargill’s base salary from $140,000 to $171,225.50 from October 20, 2008 to October 19, 2011 without the proper approval.

According to the controversial and scathing report the increases were given without the approval of former Prime Minister and NIB Minister Hubert Ingraham, NIB board of directors and human resources.

The auditors from Grant Thornton sought advice from Thomas Evans QC, senior partner at Evans and Co. Attorneys at Law to determine whether the authorisation and payments of executive salaries and bonuses by Mr. Ward without the knowledge of the proper authorities were in accordance with the NIB act.

But in his opinion, the attorney indicated that Mr. Ward, in approving these payments without the full knowledge of the NIB board and the human resources committee.

That such actions were ultra vires, or beyond the powers of both the board and human resources and consequently are void and of no effect.

Additionally, Mr. Evans said in the report that Mr. Cargill and Human Resources Vice President Richenda King in submitting the proposal for salary increases to Chairman Ward for authiorisation may lead to an inference that they were complicit in the ultra vires conduct of the chairman.

Also from the scathing report Grant Thornton outlined the findings of an interview the company did with Mr. Ward and is reported as saying, “I believe that I did not do anything illegal or unethical and I would certainly react very strongly if someone tried to tarnish my reputation.”

The interview also said Grant Thornton asked Mr. Ward why the Board was not informed about Mr. Cargill’s increases.

According to the report, he replied, “We did not discuss details of the executive remuneration at the full Board meetings. The minister does not approve annual increases. The minister approves the initial contract/terms of the contract,” he continued.

“You cannot run to the minister every time for salary increases. The previous minister didn’t and as far as I’m aware, it has never been done.”

The report also noted that Mr. Cargill took home more than $915,000 from 2011 to early 2013 acting as an NIB representative on the Commonwealth Brewery Limited, Cable Bahamas Limited and Bank of The Bahamas Limited boards.

May 08, 2013

The Bahama Journal

Caribbean Blog International 

We want the truth, the whole truth and nothing but the truth concerning the disposition of the people’s money at the National Insurance Board (NIB)

Come Clean on NIB

The Bahama Journal Editorial



That matter concerning who did what, who decided who should get what and that matter which concerns money in the care of the National Insurance Board is one that should be decided now.

The Hon. Shane Gibson is himself clear enough in his mind as to what should be done. Like us he seems to be on the side of those Bahamians who know that whatever is to be done should be executed now rather than later. As one news report suggests: – “…National Insurance Minister Shane Gibson said he is already satisfied [in his mind] “what course of action we should take” based on the findings of the audit into the National Insurance Board.

Decisions made by NIB board members “based on the information (they) had when they were first appointed, seem to be justified…it went way beyond where we thought it would go and so we don’t want to make any rushed judgment or decision; we want to think about it carefully.

But I can guarantee you one thing, at the end of the day – it will be made public and it’s just a matter of when…” Just a matter of when is not good enough. Whatever is to be done should be done now. We need to know all that the Minister and whomever else already knows the whodunit questions and the corresponding answers.

In his statement of the obvious, Minister Gibson says that, “…As soon as we make a decision based on the recommendations of the AG’s Office, then one of two things will happen:- “He will either return to work or he won’t return to work.” We all must wait to hear, see and understand what the Attorney-General’s Office has to say on the matter concerning the stewardship of the people’s money.

The time is now for demanding that the Hon. Shane Gibson show and tell the Bahamian people all that he knows concerning whatever it is that has come to light in the aftermath of that forensic audit into the affairs of the National Insurance Board ordered and/or sanctioned by his colleagues in the Cabinet. And let it be known that we shall have none of that good old fudge that some among us are prepared to feast on when there is information in hand that might hurt this or that favored character of ours’.

The chips – as they say – should be allowed to fly where ever they may. Very many other right-thinking Bahamians want to know about what really did go down at National Insurance to cause all the furor and innuendo that now engulf a number of current and former employees of that star-crossed government owned entity.

Not only do we want to know what happened, we want to know if anyone is going to be charged with any wrong-doing. And most of all, we take this opportunity to let this administration know that the Bahamian people want them to come clean and let the chips fall where they may. And lest there be some other mistake concerning the extent of the people’s justified anger about what they have heard concerning the National Insurance issue, these people are also angry because things are tough for them. They are therefore in no mood to turn a blind eye on this scandal.

The hurt for many continues, so too does the gravy train hum for some others who are mired in games now being played out in other sectors of this or that state-owned entity. Enough remains enough! In addition, as we look in on scandal’s NIB face, we are reminded of the fact that this nation now reels not only at the hammer blows inflicted by a world-economy over which it has little to no real control, but that the so-called man in the street now cowers in the cold shadow of poverty on the hoof.

An ever expectant people now demand transparency, accountability and responsibility from all who lead and all who would lead. But above all else, the Bahamian people demand action, results and transparency from those elected to serve them. In addition, they are now demanding the same from all those nameless, faceless bureaucrats who work with, for and under the command of politicians. We too need to know whether the National Insurance Fund has been pillaged and somehow or the other been diverted from their proper use.

Put simply:-We want the truth, the whole truth and nothing but the truth concerning the disposition of the people’s money.

April 17, 2013

Jones Bahamas

Caribbean Blog International

The National Insurance Fund in The Bahamas Faces Depletion by The Year 2025 unless Serious Reforms are Instituted

The Social Security Reform Commission wants A Portion of The National Insurance Fund to be Invested Outside of The Bahamas - to Give it a Chance to Diversify Its Portfolio and Help It To Grow

NIB Losses Worsen

By Candia Dames

candiadames@hotmail.com

Nassau, The Bahamas

04/10/2004

Return on National Insurance Fund investments continued to decline last year, a clear sign that the country’s social security scheme is in urgent need of reform, according to Chairman of the Social Security Reform Commission Alfred Stewart.

Mr. Stewart, who was a guest on the radio Love 97 programme, “Jones and Company” Sunday, said at the end of 2003, the rate of return to the Fund was just under six percent.

When the 7th Actuarial Review of the National Insurance Board was completed at the end of 2001, the rate of return stood at 6.25 percent.

The Review, which was made public last year, created widespread concerns about the future of the Fund and prompted the government to establish the Reform Commission to chart the way ahead for NIB.

The returns to the National Insurance Fund peaked around 1984 when the Fund was earning close to 10 percent per annum, said Mr. Stewart, who added that since that time, there has been a decline in the level of the returns to the Fund.

He said this is a clear sign that the social security programme is earning less and less money every year.

“The need to make changes to the Fund to increase contributions and so forth could significantly be impacted depending on the level of investment returns,” he said.  “In other words, the higher the investment returns, the less you need to increase rates or increase the contribution ceiling and the like.”

With the National Insurance Fund facing depletion by the year 2025 unless serious reforms are instituted, the commission wants a portion of the Fund to be invested outside The Bahamas.

Mr. Stewart said this would give the Fund a chance to diversify its portfolio and help it grow.

“In addition, what we’re recommending is a proper investments policy and proper investment guidelines so that all investments of the Fund, whether local or international, are done within the context of the approved investment policy of the Board,” Mr. Stewart said.

He added, “In The Bahamas, $1.4 billion available for investments is a very large sum of money.  The local capital market in The Bahamas is only just beginning to develop and it is difficult to lay off $1.4 billion in The Bahamas in sufficient investment instruments to give the National Insurance Fund the kind of asset allocation that it ought to have and also the diversification that it ought to have.”

The government appointed the commission after the Actuarial Review warned that depletion was imminent without reform.

Changing demographics and other factors are being blamed for this possibility.

It is a problem that is not unique to The Bahamas, with developed countries like the United States facing the same dilemma with their social security schemes.

The challenge for administrators of these type funds is keeping them afloat, as aging populations would mean more recipients and fewer contributors.

“When the National Insurance scheme was initially established given the characteristics of the demographics of The Bahamas and the expected mortality, the design at that time was adequate and could meet the needs for the indefinite future,” Mr. Stewart pointed out.

He added, “However, [like in many places around the world] people are living much longer than was initially anticipated, so what’s been happening is the number of persons in retirement compared to the number of contributors in the scheme has been increasing rapidly.”

In addition to falling birth rates and increasing life expectancy among the elderly, the Actuarial Review also pointed to a contribution rate that is below the average cost of benefits as a key factor that would contribute to the death of the Fund.

According to the review, on December 31, 2001, NIB benefits reserves stood at $1.1 billion.  Mr. Stewart revealed while on the show that those reserves now stand at $1.4 billion.

He pointed to problems faced in investing the Fund, saying that some changes need to be made.

Keith Major, who chairs the commission’s public relations subcommittee, said the commission recommends that up to 40 percent of the Fund be invested abroad.

The Actuarial Review pointed to the challenges associated with investments, saying that the size of the National Insurance Fund relative to the Bahamian economy, and the restriction on investing overseas, often makes it difficult to find suitable investments.

As a result, almost one-third of the portfolio is now held in short-term bank deposits, investments not consistent with the long-term nature of NIB’s liabilities, the Review said.

“With reserves projected to nearly double in the next 15 years, new investment avenues and a revised approach to investing NIB funds will be required,” it also said.

Mr. Major on Sunday reminded that, “Funds like these are affected 20, 30 years down the road by decisions you make now.”

He said there are five contributors now for every person who is receiving retirement money from the Fund.

“A few years down the road there is going to be two or one and a half,” he said. “A lot of us are going to be receiving.  So the Fund will go up and it will come down suddenly if we don’t make these changes.”

The Review said that reserves are expected to begin decreasing in 2019, when total expenditure will exceed total income for the first time.

The Actuary has recommended that the insurable wage ceiling be reviewed and changes should occur annually and reflect the increases in either official wage or price indexes, as are commonplace in social security schemes in developed countries.