Proper NIB funding policy needed immediately, notes actuarial report

The National Insurance Board (NIB) must develop clear financing and funding objectives in order to ensure that the plan’s assets plus future contributions are sufficient to deliver promised benefits.

This was the third recommendation in the “Eleventh actuarial valuation of the National Insurance Board of The Bahamas as of December 31, 2018”, a copy of which was obtained by The Nassau Guardian.

However, the actuarial report notes that without a substantial, immediate and recurrent increase of the current contribution rate, the usefulness of adopting a funding policy is very limited.

“We suggest that the NIB hold discussions with stakeholders on the possibility of implementing an explicit, written funding policy. The policy should be well thought out and periodically reviewed. This funding policy should be closely linked to the investment policy,” the actuarial report states.

“The investment policy should clearly take into account the result of the actuarial valuation and the financial risk that the scheme is going to face. A specific investment policy should be adopted for each branch.

“For the pension branch, the investment policy should reflect the long-term nature of the branch and be invested in long-term assets. Diversification, by investing a higher proportion in foreign investments, should also be considered.”

The report recommends an increase of the contribution rate by two percent on July 1, 2022, followed by increases every two years until 2036, which could restore the short- and medium-term financial sustainability of the scheme.

“This actuarial valuation shows that unless the benefits are reduced, an increase in the contribution rate is necessary. The magnitude of such an increase should therefore depend on clear financing and funding objectives. Such objectives do not currently exist at the NIB,” the report notes.

“It is therefore recommended that the NIB adopt a funding policy in order to: formalize the long-term funding objectives of the scheme: for example, targeting an appropriate level of reserve over the long term – this objective is the major driver of the contribution rate; better understand the risks and advantages of financing options; ensure that plan assets plus future contributions are sufficient to deliver the promised benefits; and enhance corporate governance by increasing transparency.”

The report states that funding rules must address the interests of stakeholders, including current and past beneficiaries and contributors to the financing of the system; as well as employers, the general public and the government. Funding rules should also specify contribution rates, risks faced by the scheme and how these risks can be managed; risk tolerance; allocation of risks among participants and employers; funding objectives; frequency of actuarial valuation and the method of actuarial projection; and a funding method.

In April, Minister of State in the Office of the Prime Minister Myles LaRoda said he anticipated that NIB contributions would increase by 1.5 to two percent in the next year, making reference to the actuarial report, but not making it public or providing specifics of the report’s recommendations.

More recently, he said an increase could not be circumvented.

The report forecasts that the reserve would be depleted by 2028 at its current payout pace.

Successive actuarial reports have urged that the fund is in jeopardy.

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Jasper Ward

Jasper Ward started at The Nassau Guardian in September 2018. Ward covers a wide range of national and social issues. Education: Goldsmiths, University of London, MA in Race, Media and Social Justice

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