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NIB responds to Ninth Actuarial Review

Confirms plan to move away from govt debt to offshore investments
  • Rowena Bethel.

Guardian Business Editor

Published: Oct 07, 2013

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In light of findings from the Ninth Actuarial Review of the National Insurance Fund (NIF), the director of the National Insurance Board (NIB) has sought to stress that the findings “are not a reflection of the position of the fund today”.

NIB Director Rowena Bethel, when contacted for comment on the 2007 to 2011 review, said it is “prudent to emphasize the context and circumstances of the review”.

The Ninth Actuarial Review, tabled last week in Parliament, suggested that the fund is not financially sustainable based on current benefits and contribution.

In addition to a “lack of good governance” and “political will” to penalize late or non-contributing employers, the review mentioned administrative costs as a particular concern with respect to sustainability, calling for a reduction in these if unnecessary contribution increases are not to be required in the long run.

It suggested that NIB employee numbers may need to be reduced, and that staff experience generous salaries and benefits.

Bethel said: “Administrative costs continue to be a challenge for social security programs globally. The Eighth Review assumed that administrative expenses would decrease over time. The projections in that review presupposed that administrative expenses, expressed as a percentage of insurable wages (contributions income), would gradually decline following staff reductions in 2006 with the voluntary early retirement package. It also assumed an increase in the wage ceiling, which did not occur.”

With respect to comments in the review that NIB should reduce exposure to government debt as a proportion of its investments, Bethel said it must be emphasized that there was “no government debt default during the review period”.

“Further, NIB has long recognized the need to diversify the fund’s investment portfolio,” she said. “The objective to reduce the allocation from Bahamas government instruments to more offshore investments continues to be included in the organization’s strategic plans.”

She clarified that investment income was 5.3 percent above projections, with an average yield on reserve of 5.6 percent compared with an assumed rate of five percent.

“Government-directed investment proposals are reviewed on a case-by-case basis and only those which satisfy the board’s investment policy guidelines are approved,” she said.

“It must be noted, however, that historically investments in government securities and properties have benefited the NIF, particularly during the recent global economic downturn.”

The director highlighted that a “large negative variance” in contribution income between the Eighth Actuarial Review and the Ninth Actuarial Review, was primarily due to two main factors.

These included the fact that the projections of the Eighth Actuarial Review were made prior to the onset of the global economic crisis, which negatively impacted foreign direct investments and the labor market.

“This provides the context for the percentages falling below projections and reflects that The Bahamas’ economy itself contracted for two of the five years of the review period,” said Bethel.

Furthermore, contribution income was impacted by the fact that the wage ceiling did not increase from $400 to $600 per week in 2009 as assumed, Bethel said. Instead the ceiling was increased to only $500 in 2011.

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