By Candia Dames, Guardian News Editor

The National Insurance Fund may not be on the brink of disaster today, but a crisis continues to loom as no substantial steps have been taken to prevent the country's social security blanket from wearing thin, according to the official who has completed the fund's eighth actuarial review.

"We could wait," said actuary Derek Osborne. "It's just that the longer we wait, the more drastic the reforms are going to have to be."

In the new actuarial review, Osborne, a Montserrat native who is also a consultant for other such funds in the region, recommends that NIB cut its expenses and improve collections. He also recommends that the number of years a person has to pay before receiving lifetime pension benefits from the fund be increased from three to 10 years.

But while the Social Security Reform Commission, which was appointed under the Christie administration, recommended a contribution rate increase, Osborne is not doing so at the moment.

"I'm not convinced that we have our house in order yet to justify collecting more money," he explained.

"They're things that we can do to shore up the fund, that we need to do, like cutting expenses. Our expenses are much too high, administration costs are much too high."

Five years after a manpower study found that NIB was overstaffed, the agency continues to have on staff more employees than it actually needs, according to Osborne, but he said his role is not to advise any government to downsize.

When the study was conducted in mid-2003 NIB, which at the time had 465 employees, was overstaffed by 25 percent, according to consultants.

In an effort to reduce overall costs, NIB implemented a voluntary employee retirement package, whereby employees who were eligible to collect pensions - that is those who were over 55 or who had given 30 or more years of service - could retire between mid-2004 and December 2006 with specific incentives.

Eighty-five people accepted voluntary separation packages.

Philip "Brave" Davis, the Progressive Liberal Party's member of Parliament for Cat Island, Rum Cay and San Salvador, who at the time was chairman of NIB, said in the House of Assembly in 2005, "While our administrative costs remain high and actually increased in 2004 because of the cost of the incentive package, the board is confident that significant savings without loss of any service quality, will be realized in the long run."

But at the end of 2007, the corporation had approximately 485 people on staff, according to Osborne. He estimated that nearly 100 people were hired last year at NIB.

Asked if this occurred prior to the general election, Osborne confirmed that it had.

Apart from dealing with its significant expenses, the actuary spoke of the need to improve compliance.

There have long been concerns about employers who are not meeting payments on a timely basis - or at all, in some cases. And the fund currently only collects from 15 percent of self-employed people.

"On the benefits side, we also have perhaps the most generous social security system in the world, where after only three years of contributions someone qualifies for a lifetime pension," Osborne said.

Failing to collect money from employers when benefits are going to be paid is a cost to the fund, he pointed out.

"For the self-employed, it's not that great a cost because they only get based on what they put in," the actuary said. "However, the benefits are generous. If they put in three years and no more then they get a pension that is higher than what the contribution would have otherwise been able to purchase."

Worries about the National Insurance Board and its billion-dollar fund going broke have been expressed over the years by successive ministers responsible for NIB and other officials.

Last year, while he was minister for NIB, Kenneth Russell said, "We will eventually be overcome by events. If nothing is done with it, the National Insurance Fund would eventually fail."

But there has been little or no action on key areas of concern raised in past actuarial reviews.

The fund's seventh Actuarial Review revealed that unless changes are made, the fund would face depletion by 2029. The new review projects roughly the same depletion date.

"It faces going broke, as is the case with every social security fund that's similarly designed," Osborne said. "The U.S. has the same challenges and there's nothing wrong with that, once we know how to fix it."

The Social Security Reform Commission recommended that the government increase the contribution rate from 8.8 percent to 11.8 percent, discontinue issuing National Insurance numbers to illegal immigrants and invest a portion of NIB's funds overseas.

"The Commission's recommendation for the most part would have produced more income, because it would have raised the ceiling and we would have also raised the contribution rate on the income side," Osborne explained.

"And on the benefit side, we would have certain changes like the three-year pension going to 10 years gradually, and if all the recommendations were taken by now, there would have been some specific effort to reduce administration costs."

That Commission called for many of its recommendations to become effective in January 2006, but nearly three years later, most of those recommendations have not been effected. One exception is the one having to do with overseas investments. That became a reality with the relaxing of exchange controls.

Osborne noted, however, that only a small portion of the fund is being invested overseas.

But while he said future generations of Bahamians could end up carrying the burden of a failed social security system, the actuary stressed that at the moment, NIB is not in crisis.

"NIB has lots of money," he said. "The fund is probably eight or nine times its annual expenditure, which for a scheme that's our age and where we are today is fine.

"There's nothing wrong with the level of the fund. The challenge we have in The Bahamas is that we have an aging population. We're having fewer children. People are living longer and 20, 30 years from now, the fund won't be as healthy as it is now if we don't make certain changes."

In 1990, people over 65 accounted for 4.8 percent of the population. Ten years later, they made up 5.2 percent of the 303,611 people counted in the census.

The trend is reversing for children under 15. In 1990, 32.2 percent of the population was under 15. In 2000, the figure stood at 29.4 percent.

The average age of the population is projected to increase from 25.9 in 1996 to 36.3 in 2026.

This trend indicates that the number of pensioners per person of working age increases each year. Significant increases in this ratio occur after 2016 indicating a rapidly growing group of pensioners compared to the group of workers.

"We now have about 4.8 people paying in for every one pensioner," Osborne said. "That number will probably fall to about 1.6 people (in 60 years) paying in for every person taken out, and therefore the rate will have to be increased in the future.

"At least we have an idea of what's to come and if we do nothing, contribution rates may be up to 20 percent in the future."

He wondered out loud whether "it's right for us to transfer that obligation on to [our grand children.]"

As part of NIB's reform package, the actuary wants to see an increase in the wage ceiling.

"That means that [we would be] allowing NIB to cover a larger portion of the wages of higher income people," Osborne explained.

"A lot of higher income people say NIB is irrelevant to them because they may make six or seven thousand dollars a month."

The ceiling is currently $400, so no matter how much money a person makes, NIB contributions would only be deducted based on $400 per week earnings. This ceiling has not changed since 1999.

"So in the last nine years NIB has effectively lost its relevance to higher income people whose wages have gone up," said Osborne, whose newest report on the state of the fund has yet to be tabled in Parliament.

While there's little concern expressed publicly these days about the health of the fund, there are some people who view it as a critical issue.

At an economic forum last week, Anthony Ferguson, president of the financial services firm CFAL, suggested that every Bahamian would have to pay between 15 and 20 percent of their earnings if NIB is going to be sustainable.

"The cost of living is continuing to skyrocket," Ferguson noted. "We have an indirect tax of about 40, 50 percent in this country. The savings rate is abysmal, less than $1,000 in the average bank account. You talk about the perfect storm, we are going to change the hurricane category in that we're not going to have a category five. We're going to have category 10 unless something happens."

But NIB Chairman Patrick Ward, who participated in the same forum, assured that the fund was not near being broke.

"I think that there are some things that can be done from an actuarial point of view, that will actually prolong the life of NIB in a responsible manner, that will avert the crisis that was just described in terms of the complete escalation of the contribution rate that is going to be required from individuals, so let me just assure the viewing audience that there is a different view to that issue," he said, during the nationally televised event.

But Ferguson guarded against "fooling the Bahamian people."

"The fact of the matter is the best case scenario, assuming we have a perfect landing, National Insurance will still not have sufficient funds by the year 2050," he said.

"That's the best case scenario. The trend that we've been going on [shows that] by 2030 unless the contribution rates are increased significantly, it's not going to be sufficient for me to have a retirement."