Time running out to save NIB

The National Insurance Board (NIB) would have to increase its contribution rate by two percent next month and continue increases every two years until 2036 to ensure its financial sustainability, NIB’s latest actuarial report revealed.

The Nassau Guardian obtained a copy of the “Eleventh actuarial valuation of The National Insurance Board of The Bahamas as of 31 December 2018”.

The report is dated January 2022.

“It is recommended that the contribution rate for the pension branch be increased immediately to a level that is at least equal to the PAYG (pay as you go) rate,” it read.

“Of course, the schedule of increases should take into account the situation in the country and the government’s plans and underpinned by agreements with social partners.

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

“Because the contribution rate from July 1, 2036 is likely to not be sufficient in future, it is strongly recommended that future contribution increases and their frequency be discussed by the stakeholders and become part of a funding policy.”

The report noted NIB’s annual income, which is made up of contributions and investment earnings, is insufficient to pay the annual expenditures from 2019 to 2028 in the Long Term (Pensions) Benefits Branch.

It stated total annual expenditures have been higher than annual income since 2016. This means that the reserve is used to pay benefits and administrative expenses, according to the report.

“There are substantial annual deficits from 2019 to 2028,” the report noted.

“Indeed, these deficits exist since 2016, well before the severe contraction of the GDP caused by the pandemic in 2020. The pandemic has exacerbated a financial problem that existed before.

“As a result, the reserve will be exhausted by 2028. Immediate actions are needed to restore not only the long-term financial sustainability of the scheme but most importantly the short term.”

The report noted the actuarial valuation demonstrates that an increase in contributions is “necessary to make the scheme sustainable over the short term and that it should start now”.

“In fact, according to this actuarial valuation, total annual expenditures are higher than annual income (contributions plus investment earnings) for the NIB since 2016, meaning that the reserve is used to pay benefits,” the report noted.

“The Pensions Benefits Branch is now in a severe disinvesting mode. The cumulative deficit (total income minus total expenditures) over the period 2019 to 2021 is expected to be BSD276 million, exacerbating the continuous decrease of the reserve.

“The reserve for the pensions branch will be exhausted in 2028, one year earlier than in the previous actuarial review. Immediate actions are needed to restore, not only the long-term financial sustainability of the scheme, but most importantly, the short term.”

The report noted a significant increase in the contribution rate from 9.8 percent to 16.9 percent would be required to pay the full benefits in 2029.

The report added that the required contribution rate to pay all expenditures of all branches during the next 60 years is 22.55 percent.

“Higher unemployment benefits paid in 2020, due to the severe contraction of the GDP, because of the COVID-19 pandemic, increases the required contribution rate to 23.05 percent from 2019 to 2023,” the report read.

In April, Minister of State in the Office of the Prime Minister Myles LaRoda, who has responsibility for NIB, said he expected NIB contributions to increase by 1.5 to two percent in the next year.

LaRoda also pointed to the fact that there has only been one rate increase — the rate increased from 8.8 percent to 9.8 percent in 2010 — since the NIB started in 1974.

However, Prime Minister Philip Davis quickly dismissed the idea of a rate increase.

“The actuaries over the last 10, 15 years have been predicting that the fund is jeopardized because of us not having raised the contributions at NIB,” Davis said.

“Recommendations have been made since 2003, [2004], that we should raise the contributions.

“Yes, we are at that watershed moment, but I am not going to at this time put any further burden on the Bahamian people. We will see how we could be innovative and creative to ensure that we do not do or embrace such an initiative until we have brought the relief that is necessary to allow that to happen.”

Davis said LaRoda was speaking about what was outlined in the actuarial report.

He said Cabinet would consider the rate increase.

“But insofar as what my views are on it, it’s not going to happen,” Davis said.

NIB paid out more than $250 million in unemployment contributions and assistance as a result of the COVID-19 pandemic and Hurricane Dorian, which displaced thousands of people on Abaco and Grand Bahama.

The latest NIB actuarial report was prepared in the framework of the project between NIB and the International Labour Organization, represented by the International Labour Office.

The purpose of the project was to complete the actuarial valuation and support NIB with the drafting of a comprehensive funding policy.

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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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