NASSAU, BAHAMAS — The International Monetary Fund (IMF) has recommended incrementally increasing the National Insurance Board (NIB) contribution rate to 15 percent over the next 20 years to put the pension scheme on a sustainable footing.

 The IMF, in its 2023 Article IV Consultation press release and staff report released on February 2, suggested introducing payroll contributions for civil servant pensions and increasing contributions for the national pension system.

In its 2018 Article IV report on The Bahamas, the IMF warned that the current system—where civil servants contribute nothing to funding their retirement—is "unsustainable" as the government faces an estimated $2 billion in unfunded civil servant pension liabilities. The Washington DC-based fund listed civil service pensions, together with the public sector's wage bill and loss-making state-owned enterprises (SOEs), as three key reforms that the government must target.

"The Bahamas operates a dual pension system - one for civil servants and one for all employees (the National Insurance Board, NIB). Defined pension benefits are paid by the NIB, based on the length of time employees pay contributions and a reference wage. For the NIB, contribution rates equal 9.8 percent of insurable wages, while civil servants' pensions are paid from general tax revenues. Under current policies, the assets of the NIB will be depleted by 2028. Incrementally raising the contribution rate to the NIB for both public and private sector employees over the next 20 years to 15 percent would add 0.1 percent of GDP in spending (i.e., for the contributions for public workers) but would put the pension scheme on a sustainable footing," the IMF noted.

The government announced last year that the NIB contribution rate would increase on July 1st of this year and will be split 50/50 between employer and employee, with incremental increases expected to continue every two years after that for the foreseeable future.

Contribution rates are currently 5.9 percent for employers and 3.9 percent for employees. T

The rate increase will mark just the second increase – the first was by one percent in 2010, which coincided with the implementation of the permanent phase of the unemployment benefit – in almost 50 years of the Fund's existence.

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