Survey stresses importance of activating regulatory framework for private pension schemes
Private pension fund assets are on the increase, with fund holdings close to $1.2 billion by the end of 2017 and the communications and utilities sector holding the largest amount of pension funds. However, the benefits paid out appear to be increasing quicker than the rate of growth of contributions.
These revelations were contained in a private pension fund survey conducted by the Central Bank of The Bahamas, covering the period 2016-2017. The survey’s results were featured in the central bank’s Quarterly Economic Review for the period ending March 2019.
The survey notes that pension funds seem to have secured their footing and growth through investment in domestic assets.
“In addition, the portfolios for defined benefit schemes continue to favor more conservative investments, such as government securities,” the survey states.
“However, in an effort to maximize relative returns in a low-interest rate environment, both defined benefit and defined contribution plans have shifted their investment portfolios into higher-yielding assets. The low survey response rate nevertheless underscores the importance of concluding and activating the regulatory framework for private schemes.”
The survey document explains that the draft bill for pension fund regulation is still awaiting approval.
“The bill would permit more comprehensive monitoring of activities, especially as it relates to smaller plans,” the document states.
“As contemplated, the regulatory framework for private pension plans would also reinforce mandates for prudent management practices within private schemes.”
A breakdown of the pension assets by sector revealed that the communications & utilities sector has the largest share of private pension funds at 33 percent, with the hotel and restaurant sector at 26.8 percent, the financial sector at 22.4 percent and the transportation sector at 10.7 percent.
Despite growth in private pension funds, the survey notes that individuals saving in bank accounts and the assets of the National Insurance Board (NIB) remain the two largest concentrations of national savings.
“Private individuals’ deposits – inclusive of savings, fixed and demand balances – stood at $3.4 billion, or the equivalent of 27.7 percent of GDP in 2016 and at 26.7 percent the following year,” the survey states.
“However, these funds are not a significant portion of an individual’s retirement buffer, since average balances in more than 75 percent of these accounts measure less than $10,000, while more than three-quarters of total savings are concentrated in less than ten percent of individual accounts. The NIB held collective retirement savings of $1.6 billion in 2017, representing approximately 13.3 percent of GDP and remaining relatively stable over the past two years.”
The survey added that “personal savings in life insurance companies and credit unions amounted to an estimated $1.4 billion and $409.6 million in 2017; approximately 11.3 percent and 3.4 percent of GDP respectively”.
Education: Florida International University, BS in Journalism