Key Takeaways
- • Deputy Prime Minister Peter Turnquest said resolving the government's unfunded civil service pension liability is "certainly a high priority but not top of the list," according to Tribune Business.
- • The Minnis administration has issued a request for proposal for consultants to examine public sector pension reform and existing liabilities, with findings expected shortly.
- • KPMG's previous research suggests the unfunded civil service pension liability is approaching $2bn, while the 2018-2019 Budget allocates $95m to $100m annually to fund civil service pensions through fiscal 2020-2021.
- • The IMF has called the current non-contributory system "unsustainable" and recommended moving to a contributory regime near term and a defined-contribution scheme medium term, with accrued liabilities projected to reach $3.7bn by 2030.
- • Fidelity Merchant Bank & Trust president Michael Anderson described the government's pension position as facing "massive problems," as no organised scheme exists for the civil service.
Summary
Deputy Prime Minister Peter Turnquest told Tribune Business that resolving the government's looming multi-billion dollar pension crisis "is certainly a high priority but not top of the list." He said the Minnis administration has gone out for a request for proposal on a project to re-examine public sector pensions, and that once the evaluation is complete, the government will set out a definitive position on reforming public pensions and addressing existing liabilities. His comments followed a Central Bank survey highlighting The Bahamas' retirement challenge, with just over 25 percent of the workforce currently covered by an employer-sponsored plan, a figure that excludes government employees.
Michael Anderson, president of Fidelity Merchant Bank & Trust, told Tribune Business that the government faces "massive problems" in pensions and retirement funding, as no organised scheme currently exists for the civil service.
The liability is substantial. Previous KPMG research suggests the unfunded civil service pension liability is now likely approaching $2bn. The 2018-2019 Budget shows the government allocating between $95m and $100m annually to finance civil service pensions through fiscal 2020-2021. KPMG's earlier 2013 presentation, delivered during the early Christie administration, estimated unfunded pay-as-you-go liabilities at around $1.5bn, projected to rise to $2.5bn by 2022 and $4.1bn by 2032 absent reform.
The International Monetary Fund has repeatedly urged action. Its Article IV report last year described the current system, in which civil servants contribute nothing to their retirement funding, as "unsustainable." The IMF recommended moving to a contributory regime in the near term and a defined-contribution scheme in the medium term, which would require civil servants to contribute part of their salaries. Its 2018 Article IV report projects a $2.2bn increase in unfunded liabilities over the 18 years to 2030, an average of $122 million per year, and its 2016 assessment cited accrued liabilities of $1.5bn in 2012 rising to $3.7bn by 2030 as the population ages.
The article notes that the civil service focus also omits multi-million dollar deficits in existing schemes at state-owned enterprises such as Bahamas Power & Light and the Water & Sewerage Corporations, where staff pay little to nothing and the contribution burden falls on loss-making companies.
Michael Anderson, president of Fidelity Merchant Bank & Trust, told Tribune Business that the government faces "massive problems" in pensions and retirement funding, as no organised scheme currently exists for the civil service.
The liability is substantial. Previous KPMG research suggests the unfunded civil service pension liability is now likely approaching $2bn. The 2018-2019 Budget shows the government allocating between $95m and $100m annually to finance civil service pensions through fiscal 2020-2021. KPMG's earlier 2013 presentation, delivered during the early Christie administration, estimated unfunded pay-as-you-go liabilities at around $1.5bn, projected to rise to $2.5bn by 2022 and $4.1bn by 2032 absent reform.
The International Monetary Fund has repeatedly urged action. Its Article IV report last year described the current system, in which civil servants contribute nothing to their retirement funding, as "unsustainable." The IMF recommended moving to a contributory regime in the near term and a defined-contribution scheme in the medium term, which would require civil servants to contribute part of their salaries. Its 2018 Article IV report projects a $2.2bn increase in unfunded liabilities over the 18 years to 2030, an average of $122 million per year, and its 2016 assessment cited accrued liabilities of $1.5bn in 2012 rising to $3.7bn by 2030 as the population ages.
The article notes that the civil service focus also omits multi-million dollar deficits in existing schemes at state-owned enterprises such as Bahamas Power & Light and the Water & Sewerage Corporations, where staff pay little to nothing and the contribution burden falls on loss-making companies.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.