Osborne: Time for NIB to consider contribution rate increaseFormer NIB consultant actuary ‘surprised’ deficit occurred three years earlier than he expected
According to former consultant actuary at the National Insurance Board (NIB) Derek Osborne, “it is certainly time” for NIB to consider a contribution rate increase amid the International Monetary Fund’s (IMF) revelation that expenditures for benefits outweighed total income in 2016.
More than four years ago, Osborne projected in NIB’s ninth actuarial review that the fund’s first deficit would not occur until 2019, which he suggested would magnify the need to start increasing contribution rates on an incremental basis.
Osborne told Guardian Business yesterday that he was “somewhat surprised” the deficit occurred three years earlier than he expected.
He also indicated that with the deficit coming three years earlier, it could mean that the fund’s projected depletion date could also come sooner than projected. The IMF pointed out that under NIB’s current policies, the fund’s reserves would be depleted by 2029.
“If my projections for the first deficit were for 2019, and it has now occurred three years earlier, it is quite possible that the next major event, which would be fund depletion, could be earlier than 2029,” said Osborne.
“The projections show that the fund will be depleted if there are no changes to the contribution rate or benefit rules, but it is because we are thinking ahead that we advised government on ways to make sure the fund does not go broke, and you do things in advance to push that possibility further out in time.
“I am somewhat surprised. It has been a few years since I left NIB. I am not privy to actual numbers anymore, other than what is published or tabled in Parliament.
“The 2016 numbers have not yet been tabled in Parliament and therefore are not public.
“The economy was sluggish for a while and the prime rate on government bonds was reduced, which means that investment income would have been lower than projected.
“So, I am not totally surprised. Three years earlier than expected is a little unfortunate.”
He added, “It is no surprise that one day we would have to start dipping into reserves to help meet expenditure, and that is by design.
“You save money in the early years, and you draw down in the later years.
“The question is how much do you take from reserves before raising the contribution rate, and when you raise the contribution rate, how high do you raise it? So, it certainly is time for a rate increase.”
The IMF also suggested that NIB look toward a defined-contribution regime over the medium term, which Osborne strongly advised against.
“I do not believe The Bahamas is a suitable environment for a defined-contribution national pension system,” he said.
“Even if we were to consider it right now, it would mean paying twice, because the system we have right now is only partially funded, and the unfunded portion would still have to be paid for.”