By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government is “expected to table in Parliament” legislation to tackle unfunded civil service pension liabilities - forecast to hit $4.1bn in only seven years’ time - during the current Budget debate.

The just-unveiled Fiscal Strategy Report 2025, which has been seen by Tribune Business, identifies the public sector pension ‘black hole’ as a “significant structural risk” that is projected to require a near-$50m annual increase, or 25.5 percent jump, in annual Bahamian taxpayer funding over the next four fiscal years to 2028-2029.

The report reiterates that, if not addressed, the unfunded civil service pensions will “exert increasing pressure on the fiscal balance” and “crowd out resources” needed for investment in critical public services, such as education, healthcare and national security, plus infrastructure upgrades.

However, there has been no mention yet of the proposed Pensions Bill’s House of Assembly tabling so far during the 2025-2026 Budget debate. Instead, Prime Minister Philip Davis KC announced an imminent salary increase for civil servants, with ‘middle managers’ set to enjoy a rise in their end-June pay cheques. And non-managerial workers are set for a 2-8 percent increase likely come September.

The Fiscal Strategy Report is also somewhat contradictory as to the pace of civil service pension reform. On page 33, it refers merely to “tabling of the ‘white paper’ in Parliament during the 2025-2026 Budget debate”, while on Page 57 it states: “The public consultation process has concluded, and the Bill is expected to be tabled in Parliament during the upcoming budget exercise for fiscal year 2025-2026.”

Several observers have suggested that, with a general election approaching, civil service pension reform - which will require a significant number of public servants, especially relatively new hires and likely those who have been employed by the Government for eight years or less to contribute a portion of their income to funding their retirement - will be delayed until after the vote.

“Containing long-term pension obligations remains a key priority to ensure fiscal sustainability, improve inter-generational equity, and reduce unfunded contingent liabilities,” the Davis administration’s latest Fiscal Strategy Report states.

“Recurrent expenditure on pensions and gratuities totalled $182.7m in fiscal year 2023-2024, representing 6.2 percent of total recurrent spending. This figure is projected to increase to $201.6m in fiscal year 2025-2026.” It added that “an operational model for the new contributory scheme” has been designed, and a “phased implementation plan” worked out.

Civil service pension and gratuity payouts, which are presently 100 percent funded by the Bahamian taxpayer, are forecast to hit $189.7m during the present 2024-205 fiscal year with $139.313m of this sum paid out during the nine months to end-March 2025.

Thereafter, these payouts are predicted to accelerate in size, with total pension and gratuity outlays rising to $201.6m in the upcoming 2025-2026 Budget cycle, and followed by further rises to $215.9m in 2026-2027; $230.2m in 2027-2028; and $238.1m in 2028-2029.

Outlining the basic reform framework proposed by the Government, the Fiscal Strategy Report said: “The Government initiated a public feedback process on the draft Pensions Bill 2023, which aims to reform the public service retirement system to enhance preservation, reduce pension liabilities and ensure equitable employee benefits.

“The Bill proposes establishing a Contributory Public Service Pensions Fund, transitioning from a non-funded, non-contributory scheme to a funded, defined contributory pension plan. The Bill is expected to be tabled in Parliament during the upcoming budget exercise for fiscal year 2025-2026.”

While that has yet to happen, the Fiscal Strategy Report, which was released alongside the Budget, adds: “The Government continues to face a significant fiscal risk arising from its non-contributory defined benefit pension scheme for permanent and pensionable public service officials.

“This scheme operates outside the National Insurance Board’s contributory pension system for the public and is funded entirely from the central government budget. As public servants retire in greater numbers and live longer, the associated pension costs are increasing rapidly.

“According to a feasibility study by KPMG Advisory Services, total pension liabilities are projected to reach up to $4.1bn by 2032, with annual cash outflows rising from approximately $165m to $219m over that period. These outflows include both pensions and gratuities, and represent a growing share of the Government’s mandatory, non-discretionary spending,” the report continued.

“If left unaddressed, these unfunded obligations will exert increasing pressure on the fiscal balance, reduce budgetary flexibility, and crowd out resources for essential public services and investments in growth-enhancing infrastructure.... The new system is expected to stabilise long-term pension costs, limit the growth of unfunded liabilities and enhance fiscal predictability.”

Simon Wilson, the Ministry of Finance’s financial secretary, told Tribune Business in an April 5, 2024, interview 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 draft Pensions Bill 2023 is designed 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. Civil service pensions are currently 100 percent financed by taxpayers through the annual Budget.

The Bill, if enacted as is, will create a 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 two major entities missing from this list are the Bahamas Telecommunications Company (BTC) and Bahamas Power & Light (BPL).