An International Monetary Fund (IMF) working paper has asserted that population aging is among a number of unfavorable demographic trends influencing long-term projections which say pension schemes have become "unsustainable" in the Caribbean.

Through a finer lens, the IMF noted that a quarter of pension contribution is used to run The Bahamas' National Insurance scheme, as opposed to a Caribbean regional average of 15 percent, and less than one percent in the United States and Canada.

In addition, the paper said that "Staffing costs constitute around 70 percent of administration expenses, mostly reflecting the scheme's relatively large role, staff size and the difficulties of rendering social services on all the islands."

The International Labor Organization (ILO) issued a similar warning.

At the end of 2013, the National Insurance Board (NIB) had a reserve of $1.69 billion, and a ratio of administrative expenditures to insurable earnings of around two percent. The ILO said that ratio is "quite high when compared to those observed in other social security schemes in the region and in the world."

According to the IMF working paper titled 'National Insurance Scheme Reforms in the Caribbean', "administration costs in the Caribbean average 15 percent of contributions compared with around 0.8 percent and three percent, in the U.S. and Canada, respectively, highlighting the need to correct major inefficiencies in the pension schemes. Another administrative challenge is low compliance."

The authors of the paper concluded that administrative costs for pension schemes appear relatively high, reflecting limited room to exploit economies of scale in small islands. They also provided recommendations to help reduce actuarial deficits for National Insurance schemes, which include freezing old-age benefits, increasing the contribution rate, and raising the statutory retirement age.

The authors said that all three measures, if implemented together, "would on average eliminate the actuarial deficit for the region as a whole in 2016."

However, The Bahamas remains in a troubling spot.

The authors stated, "For countries with relatively large unfunded pension liabilities (e.g., Antigua and Barbuda, The Bahamas, Belize, Jamaica, and St. Vincent and the Grenadines), these measures will not be sufficient to address the actuarial deficits, despite having quite a large benefit in reducing pension costs."

Previously, Minister of State for Labor and National Insurance Shane Gibson previously said that the government has no choice but to decide soon to either increase pension contributions or cut down on benefits offered by the NIB.

But the authors suggest that those steps might not be enough.

Overall, the authors say that population aging is putting increasing pressure on public finances in the Caribbean.

"Long-term projections point to continuing unfavorable demographic trends. Thus, pension schemes have become unsustainable," the report stated.

In addition the report said, "There is a concern that investment of pension funds may lead to high exposures to government securities. These developments, together with anemic economic growth, rising unemployment, and limited room for macroeconomic policy intervention, suggests that pension reforms are unavoidable."

Xian Smith, Guardian Business Reporter

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