Results of Private Pension Plan Survey in The Bahamas (2006 & 2007)
Published: Wednesday April 1st, 2009
This article presents the findings of the Central Bank’s latest survey of private (sponsored) pension plans in The Bahamas. The survey covers the years 2006 and 2007, and extends the pension fund database, which includes information on plans dating back to 1992. Preliminary data indicates that the total value of sponsored pension assets increased from just over $300 million in 1992 to approximately $1.1 billion by 2007, as periods of healthy economic results fuelled increases in average returns on local investments and was accompanied by the enlistment of a growing number of employees in these schemes. The largest concentration of participants, and hence accumulated pension fund assets, are in employer sponsored plans in the tourism, financial services and communications & utilities sectors. Over the years, the investment portfolios of private schemes have remained relatively conservative, with the largest share of savings still accumulated in public sector securities and bank deposits. However, with the steady development of the private capital markets, investments have become more diversified into private debt, equities and mutual funds.
The retirement benefits from private schemes supplement, in most cases, pensions paid mainly by the National Insurance Board (NIB) and, in some cases, personal savings from insurance annuity products. For civil servants, NIB benefits are 10% less than private sector beneficiaries for an equivalent wage base, but these are coupled with non-contributory gratuity payments from the Government. The supplementary significance of private savings is underscored by the fact that NIB’s contributions are calculated on insurable earnings capped at $400 per week. Contributions into private pension funds are typically based on the employee’s total salary, allowing retirement benefits to vary more directly in proportion to lifetime earnings. For employees outside the civil service, who do not participate in private pension schemes, the most significant likely source of retirement resources are personal savings in insurance annuity products and bank deposits.
Private pension fund assets represent a significant source of domestic savings, continuing to outpace the nominal growth in gross domestic product (GDP), to account for 15.4% of GDP in 2007, up from the revised estimate of 14.4% in 2005. Nevertheless, private individuals’ savings in bank deposits and the invested assets of NIB remain the two largest concentrations of national savings (see Table 1). Personal savings in bank accounts stood at $3.1 billion or the equivalent of 43.0% of GDP in 2007, compared to 40.1% two years prior. However, for most account holders, the resources are not a significant retirement buffer, as the average balances in more than 75% of these accounts is less than $10,000 and more than three quarters of the aggregate savings are concentrated in less than 10% of individual accounts. The NIB held collective retirement savings of $1.3 billion, representing 18.4% of GDP in 2007 vis-à-vis a slightly lower 19.9% in 2005. The combined domestic savings in life insurance companies and credit unions approached $1.1 billion in 2007, approximately 14.9% and 3.9% of GDP, respectively.
The rest of this article analyzes the results of the 2006 and 2007 pension fund survey. This includes information on how sponsored plans are categorized, a description of the survey and estimation methodology, a detailed analysis of private plans according to their characteristic features and sectors of sponsorship; and a review of investment patterns over time. The article concludes by discussing the outlook for the private pension market.
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