By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government’s public sector pension reforms “must not erode the benefits” workers enjoy under their current scheme, a union leader is warning, while challenging if those impacted were consulted.

Mark Johnson, the Bahamas Airline Pilots Association’s president, in a letter to this newspaper contradicted the Ministry of Finance’s assertion that all stakeholders were consulted over plans to create one all-encompassing pension scheme - the Public Service Contributory Pensions Fund - to cover both the civil service and most public sector and state-owned enterprises (SOEs) workers.

BALPA represents Bahamasair’s pilots, and Mr Johnson said their current employer-sponsored pension plan - the Bahamasair Employee Provident Fund (BEPF) - had worked well for members and retirees over its 46-year existence.

Confirming that the proposed reforms, contained in the draft Pensions Bill 2023, have generated “considerable discussion” among pilots and other Bahamasair employees, Mr Johnson wrote: “First and foremost, it is important to clarify that, contrary to the statements made by the Ministry of Finance, representatives from our association, as well as numerous colleagues, have not been consulted regarding the new pension scheme.

“This lack of engagement is concerning given the profound implications the proposed changes could have on our members’ retirement plans. For over 46 years, the BEPF has served as a reliable and effective means for our members to save for their retirement, supporting countless employees and their families throughout their post-working years.”

The consultation and feedback period for the draft Pensions Bill has now closed, and Mr Johnson added: “While we recognise and appreciate the Government’s efforts to reform and improve the pension system for public sector employees, it is crucial that these changes do not inadvertently undermine existing schemes that have proven their worth and reliability over the years.

“The introduction of the Public Service Contributory Pensions Fund, without proper consultation and consideration of its impact on existing funds like the BEPF, risks destabilising the financial security that our members have worked diligently to build.”

The BALPA president added that it was paramount the Government “safeguard the interests and financial security” of all public sector workers already enrolled in existing pension schemes, and said: “These measures should ensure that the introduction of the new fund does not erode the benefits or contributions of existing members.”

He also urged the Government to “conduct a thorough impact assessment” on how switching workers who have been enrolled in a pensionable position for less than eight years to the Public Service Contributory Pensions Fund will impact existing pension plans legally and financially.

And, calling for better transparency and communication, as well as an “inclusive consultation process”, Mr Johnson wrote: “We urge the Ministry of Finance to initiate a comprehensive and inclusive consultation process that involves all stakeholders, including representatives from the Bahamas Airline Pilots Association and other affected parties........

“Enhance transparency and communication throughout the reform process. Regular updates and clear information should be provided to all stakeholders, ensuring that everyone is fully informed and able to participate in meaningful discussions about the future of their retirement savings.”

Tribune Business previously revealed how pensions for thousands of Bahamian public sector workers are poised for a major shake-up in a bid to tackle “alarming” unfunded liabilities that could impose a $3.5bn burden on taxpayers come 2030.

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business earlier this month that these pension liabilities represent “the top risk” to the stability of the Government’s finances and need to be “dealt with as soon as possible” to reduce the threat that taxpayers will increasingly be called upon to plug this multi-billion dollar hole.

The Pensions Bill 2023 is intended to end the present ‘pay-as-you-go’ pension scheme enjoyed by the Government’s near-20,000 existing civil servants through requiring them - for the first time - to contribute to financing their retirement from their own salaries.

The Bill, if enacted as is, will create the contributory pension scheme called the Public Service Contributory Pensions Fund. Its members will include all new civil service hires after it is passed by Parliament, and becomes law, once they have completed their six-month probation, while all existing public officials who have held pensionable positions for less than eight years will also be transferred to the contributory plan.

Civil servants in pensionable positions for more than eight years can voluntarily choose whether to join the contributory scheme or retain their current arrangements. The mandatory contribution rate has been set at 3 percent of a plan member’s monthly salary, with the Government making a matching 3 percent payment.

Workers can also choose, on their own accord, to raise the contribution rate for their portion to a maximum 10 percent although this will not be matched by the Government. The Public Service Contributory Pensions Fund will be overseen by a Board, which will appoint an independent investment manager, fund administrator and custodian to manage and safeguard pension plan assets.

Membership in the Public Service Contributory Pensions Fund will not be confined just to central government civil servants. For new and newer employees at state-owned enterprises (SOEs), and what are described as ‘Approved Authorities’ in the Bill, will also participate in the scheme if the legislation is passed as currently laid out, which means thousands will be impacted.

Those who join these ‘Authorities’ after the Bill is passed into law, and becomes an Act, or who have been employed for less than eight years will automatically join the contributory plan. Again, those who have been employed for more than eight years can elect to participate voluntarily, with the ‘Authorities’ involved including the likes of the Central Bank, Bahamasair and the Public Hospitals Authority (PHA).

The list of ‘Approved Authorities’ features the National Insurance Board (NIB); University of The Bahamas; Bahamas Agri- cultural and Industrial Corporation (BAIC); Hotel Corporation of The

Bahamas; Water and Sewerage Corporation; Bahamas Development Bank; Bahamasair Holdings; the Royal Bahamas Defence Force; Bahamas Maritime Authority; and the Public Hospitals Authority (PHA).

Others named in the Bill include the Hospitals and Health Care Facilities Licensing Board; National Museum of The Bahamas; the Airport Authority; National Art Gallery of The Bahamas; Nassau Airport Development Company (NAD); Bahamas Mortgage Corporation; Insurance Commission of The Bahamas; Utilities Regulation and Competition Authority (URCA); Sports Authority and National Training Agency.

Rounding out the list are the Bahamas Public Parks and Beaches Authority the National Health Insurance (NHI) Authority; Bahamas Agricultural Health and Food Safety Authority; Aircraft Accident Investigation Authority; National Crime Intelligence Agency; Civil Aviation Authority; and Bahamas Air Navigation Services Authority.

The Ministry of Finance, explaining the background to the proposed legal reforms, revealed that financing the current system will increase the annual burden imposed on Bahamian taxpayers by 32.7 percent or $54m over the next six years as growing numbers of civil servants retire and become pension-eligible. The yearly funding bill is forecast to grow from $165m at present to $219m by 2030.

Civil service pensions are currently 100 percent financed by taxpayers through the annual Budget, and the Ministry of Finance said: “During the past two years, the Government’s mission has been to prioritise the containment of growth in relation to pension liabilities, aimed at reducing the burden on public sector finances. Currently, the Government carries an unfunded liability of more than $2bn.

“Pension consultant, KPMG Advisory Services, conducted a pension reform feasibility study on the Government’s pension scheme in 2013 which was revised in 2022. This study estimated pension liabilities for public sector employees would accumulate to $2.2bn between 2013 and 2020, and projected an increase to $3.5bn by 2030.”

As for annual payouts to civil service retirees, the Ministry of Finance added: “Future cash outflows are also projected to increase significantly, from approximately $165m currently to $219m by 2030 - including both pension payments and gratuities.

“In addition, Government-owned corporations have similar defined benefit pensions with annual cash outflows of approximately $10m. Given these alarming statistics, measures must taken to provide a sustainable solution to bring about reforms to the public sector pensions plan.”

Pension payments for the current 2023-2024 fiscal year were estimated at $134.744m, with gratuities adding a further $33.776m, to bring the total taxpayer- funded outlay to $168.52m. The latter figure is forecast to steadily increase to $173.44m in 2024-2025, and then to $175.413m the following fiscal year.