Bahamas Update: NIB Rate Increase Still Not Confirmed But Hard To Avoid

• Last week, the local media reported that the government had reached an agreement to authorize an increase in contributions to the National Insurance Board (NIB), the entity that administers the country’s social security system.
• Currently, the total contribution per employed person is 9.8% of salary, with 3.9% coming from the worker and 5.9% from the employer, while self-employed persons contribute 8.8% of their incomes.
• Five years ago, an actuarial assessment of the system with the technical assistance of the International Labour Organization concluded that contributions should be raised immediately to ensure the medium-term viability of the social programs towards 11.8%, of which 8.05% should go to underwrite pension benefits. The report also recommended 200bp increases to contributions every two years until 2036, when they should reach 23.8%.
• Myles LaRoda, minister of state in charge of the NIB, warned that in the absence of a contribution adjustment, the NI Fund would lose $95Mn this year, a situation that he considered “unsustainable”. He indicated that NIB will pay some $27Mn each month in pensions to 44,000 citizens while it collects $23Mn. That is a $48Mn deficit in pensions alone, with the other benefits (unemployment, disability, etc.) making up the rest of the imbalance.
• LaRoda went on to say that contribution hikes are unavoidable given the increase in life expectancy, especially since there has been only one adjustment in the NIB rate during the almost five decades of its existence. The pension system has been in deficit since 2016 and said imbalance has been $276Mn between 2019 and 2021 alone. Under the current parameters, the system will exhaust its reserves by 2028.
• Although the NIB rate increase is a politically sensitive issue, it is believed that it is a much-needed policy move so an official confirmation should be made public in the coming days or weeks.

 (Source: Oppenheimer)