New report shows shifting savings, investment strategies

Mon, Dec 30th 2013, 12:24 PM

Valued at $1.03 billion, assets in private pension plans shrank by 1.8 percent over the four-year period to 2011 following the global economic crisis, while those sectors with foreign investments as part of their investment mix demonstrated evidence of a "flight to safety," according to a new report from The Central Bank of The Bahamas.
However, yearly pension payouts increased by 18.8 percent of assets or $6.7 million, to $59.3 million by year-end 2011. This figure was boosted by the privatization of Bahamas Telecomunications Company (BTC) and the separation packages offered.
A recent Central Bank of The Bahamas report points to private individual's deposits as still the largest source of savings in 2011, at an estimated average of $3.37 billion, or growing by 2.8 percent to 44.2 percent of GDP by year-end 2011.
However, the report notes that with most of these accounts - over 75 percent - containing less than $10,000 this form of savings was "less of a retirement safeguard".
According to the data, private pension plans were held by 29.2 percent of the labor force, or 47,879 people, in 2011 - a "slight gain" from 2008.
Hotels and restaurants employed the majority of private pension plan participants, at 79.6 percent of participants or 38,120 in 2011. The financial sector comprised 9.6 percent of private pension plan holders, while the communications and utilities sectors comprised 4.5 percent of the total.
Defined contribution pension plans continue to be the most popular and growing form of pension scheme in The Bahamas, comprising 82.9 percent of plans in 2011. Such plans provide benefits based on the accumulation of defined up-front savings contributions over an employee's working years.
However, a "few large institutions" - primarily public corporations - used defined benefit programs, which guarantee the payment of specified benefits at retirement based on tenure and level of earnings.
Of the 47,879 people with private pension plans in 2011, 4,460 were pensioners receiving benefits, with the largest number of new retirees in the tourism and communications and utilities sectors.
This data is contained in a new report from The Central Bank of The Bahamas on private pension plans between the years 2008 and 2011, the latest data available. The report is based on a survey sent to just over 140 existing and potential plan sponsors in The Bahamas during those years, which garnered a 55 percent and 49 percent response rate in 2008/2009 and 2010/2011 respectively.
This information comes as the domestic pension fund industry remains unregulated. The central bank pointed to government plans to change this in its report, stating that such legislation "should ensure that these products are operating and being administered in accordance with international norms and best practices".
Parliamentarians began debate in January 2013 on legislation intended to regulate the sector. The Employees Pension Fund Protection Bill is intended to strengthen the supervisory framework, and increase the level of portability of plans by outlining rules regarding the establishment, administration and transferability of such plans.Officials at the Cabinet Office confirmed yesterday that despite having been debated, the bill is currently in the committee phase, awaiting further comments before being ready for the third reading and passing. At this point, the legislation would go to the Senate to be debated before finally being put into law. There is at present no date set for the bill to undergo the next step of the approval process.
Assets in private pension funds are significant, averaging $1.04 billion or 13.2 percent of GDP between 2008 and 2011. By comparison, National Insurance Board (NIB) savings averaged 19.1 percent of GDP over the period. Invested assets of credit unions, meanwhile, accounted for a smaller share of savings at 3.4 percent of GDP. However, it was credit union assets which grew most over the period, by six percent.
In terms of investment strategy, the bulk of pension assets are invested in public sector securities, mutual funds and bank deposits. By sector, communications and public utilities are primarily invested in government bonds, although this shrank to 47 percent from 51 percent in 2008.
Meanwhile, the assets of the financial sector are concentrated in mutual funds (40 percent), followed by government securities (29 percent). For plans in the tourism sector, the largest share of assets are in equities (50 per cent), followed by government bonds (26 percent).
"An analysis of the distribution of assets by instrument type showed that as the economic recession intensified, pension fund managers reallocated their portfolios in favor of more conservative investments. As a consequence, holdings of government bonds increased from 32.6 percent in 2008 to 38.6 percent by end-2011," said the central bank.
Most pension schemes continue to hold the majority of their investments locally, with only the financial and hotel and restaurant sectors having foreign investments as part of their portfolios. The proportion of external investments as a part of their portfolios, however, were reduced from average highs of 30.4 percent and 18.5 percent to 7.4 percent and 18.3 percent respectively, "reflecting a flight to safety amid the financial crisis," according to the central bank.

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