The National Insurance Board Pension Review Committee set up October, 2003 to investigate the barrage of problems facing the National Insurance Fund, is expected to report its findings in May, confirmed director Lennox McCartney.
Speaking at the Bahamas Business Outlook 2004 on Tuesday, Mr. McCartney said following revision of the fund, public discussions will be held on possible solutions facing the NIB.
Actuarial reviews on the fund show that the increasing aging population and the less than favourable investment returns generated by the fund will lead to the scheme going broke by 2029.
He explained that the fund was currently at a cross road that required important decisions be made to avoid a potential crisis.
“The time to look at all of this is really now. We have talked about this for at least four or five years and it’s really now time for us to act because the longer we wait the higher the contribution rates will have to be.”
The fund currently collects $10 million in contributions per month and pays out $9.5 million in benefit payments and administrative expenses. The investment income earned by the fund adds up to $5.5 million and the funds total reserves at the end of 2002 stood at $1.2 billion. Based on the current reserves and projected expenditure and contribution the fund will be left with a shortfall of about $3.4 billion over the next 60 years.
According to the NIB Director, the total population was projected to rise over time and eventually level out at 450,000 people over next 60 years and while the number of persons of school age was projected to decrease and then level out, the portion of the population at 65 was expected to continue to increase over the years.
Mr. McCartney noted that the contribution rate paid in The Bahamas is one of the lowest in the region with countries like Barbados having a combined contribution of approximately 20 per cent. Barbados contribution percentage includes national insurance, unemployment insurance and other social programmes.
He added that the rate of contributions collected has remained the same since 1974 while benefit expenditures and administrative costs have steadily increased since the early 1990’s meaning that on a year by year basis the fund spends more than it collects.
Mr. McCartney said that the NIB is facing a situation where it needs to look at the levels of reserves, contribution rates and benefit payments to see what changes are needed to bring a balance to the intakes and outtakes of the fund. “The earlier we make these decisions the sooner we will have an impact,” he said.
The investments of NIB consist of 50 per cent government securities, five per cent in government buildings, which are mortgage to the government at 1.75 above prime, 25 per cent in short-term deposits and government loans making up a significant portion of the remainder.
Mr. McCartney described the current investment portfolio of the fund as presenting “a significant problem” for the fund as the current investment strategy does not support the long-term liabilities of the Fund.
He revealed that the ratio of NIB workers to retired persons was also an area that needed to be addressed. He noted that the present ratio of 4.5 workers to each pensioner would be reduced to 2.1 by 2031 and 1.5 by 2061.
By Martella Matthews, The Nassau Guardian
