NASSAU, BAHAMAS – The government intends to introduce a defined contribution-type pension plan for new public-sector employees, according to its 2019 fiscal strategy report.
The report was tabled in Parliament yesterday, and pointed to significant fiscal risk due to the central government’s “unfunded defined pension arrangement”.
It called the arrangement “a growing liability”.
“The Government acknowledges this exposure and is in discussion with advisors on initiatives to limit this exposure,” the report read.
“As part of its mitigation initiatives during the fiscal planning horizon, the Government is intending to introduce a defined contribution-type pension plan for new employees which will allow for greater sustainability of these costs.”
The move to a defined contribution type pension plan falls in line with recommendations by the International Monetary Fund (IMF).
The IMF has urged the government to address the multi-billion dollar liability for several years.
Previous research by the KPMG accounting firm suggests this unfunded liability is now likely to be around $2 billion dollars.
The IMF, in its Article IV report last year, noted that the present system – where civil servants do not contribute anything to funding their retirement – is “unsustainable”.
The IMF report added: “Staff analysis in the 2016 Article IV Staff report noted that accrued government pension liabilities totaled $1.5 billion in 2012, and would rise to $3.7 billion by 2030 as the population ages.”
The IMF called for reforms that involve “moving to a contributory regime in the near term, and to a defined-contribution scheme in the medium-term”.
This would require civil servants to contribute a portion of their salary to funding their retirement, rather than having this financed 100 percent by the taxpayer through the budget as is currently the case.
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