Results of Private Pension Plan Survey in The Bahamas (2004)Published Monday October 9th, 2006
The Central Bank of The Bahamas' latest survey on sponsored (mainly private) pension arrangements obtained results for 2004 and extends the available data coverage, which begins at 1992. Indications are that assets have grown nearly three fold since 1992, from just over $300 million to $833 million in 2004. Growth in pension assets remains strongly correlated with periods of heightened expansion in the economy and the tourism sector in particular, supporting steady increments in the share of the labour force participating in such schemes. Results from the 2004 survey reveal that the share of sponsored pension assets invested in public sector securities and in private capital market instruments continued to increase, while the proportion allocated to bank deposits and holdings such as real estate decreased further. Plans, meanwhile, benefited from steady firming in the average rate of return on investments.
Private pension benefits are generally intended to supplement retirement income received from the National Insurance Board (NIB). However, as opposed to NIB's coverage capped at a wage ceiling of $400 per week, private schemes vary benefits without such limits, in proportion to the earnings of the individual. A non-contributory supplementary scheme also exists for retired civil servants, which is funded by the Government. Grouping the approximately 17,000 central Government employees with those covered by private schemes, therefore, placed the estimated share of the employed Bahamian workforce entitled to supplementary retirement income near 36.0% in 2004.
Private or sponsored pension funds are gradually gaining in importance as vehicles for domestic savings (see Table 1). The accumulated assets in these schemes represented a relatively stable 14.7% of GDP in 2004. While these were appreciably less than the collective savings held by NIB, estimated at 22.0% of GDP in 2004, they exceeded the corpus held by insurance companies, which approximated 11.8% of GDP. A smaller share of domestic savings, representing some 3.0% of GDP is attributed to credit unions.
By far, nevertheless, the bulk of financial savings of private individuals are held in deposits at banks, equivalent to an elevated 42.1% of GDP in 2004 compared to 38.2% in 2003. However, total deposits reflect a significantly skewed savings pattern, as approximately three-quarters of the balances are held in less than one quarter of the accounts. Although based on individuals' salaries, the distribution of savings in private pension funds is much less skewed, while average NIB benefit entitlements are almost evenly distributed among eligible contributors.
Against this backdrop, this article analyzes the results of the 2004 pension survey, highlighting overall trends in the industry and various sub-groupings according to the nature of funds and sectors of sponsors. First, a brief overview of the survey and estimation methodology is discussed, followed by an outline of the characteristics of the various schemes. The article then reviews trends in investment patterns among pension plans and concludes with a discussion on the outlook for the industry.
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