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Results of Private Pension Plan Survey in The Bahamas (2005)

Published Monday October 15th, 2007

This article analyzes the results of the Central Bank’s latest survey (2005) on private (sponsored) pension plans in The Bahamas. The available database on these activities now spans thirteen years, starting from 1992. According to the 2005 results, sponsored pension assets rose at a strengthened pace of 11.9% to approxi-mately $954 million, consolidating continuous average yearly gains from an estimated low of $300 million in 1992. Recent annual gains have been supported by the expansionary trends in the Bahamian economy, which have resulted in more employees contributing to these schemes and elevated average returns on invested assets. The largest concentration of assets and partici-pants continues to be in plans sponsored by employers in the tourism, financial services and communications & utilities sectors. Based on investment patterns, the largest share of pension assets is still held in Govern-ment bonds and securities, although the proportion of both these investments as well as bank deposits have decreased due to diversification in equities, mutual funds and other private capital market instruments.

In most instances, private pensions supplement con-tributory retirement benefits to which Bahamians are entitled under the National Insurance Board (NIB) Act. Unlike the mandatory NIB scheme, which uses a formula to cap contributions and retirement benefits against an annual income of $20,800, total funding and potential benefits from sponsored schemes continue to increase along with participants’ earnings. An estimated one-fourth of the Bahamian workforce participates in such schemes, and the Government operates a non-funded gratuity scheme for tenured civil service employees. The other significant sources of domestic financial savings are bank deposits held by individuals, and the assets of domestic credit unions and insurance companies.

As to their relative importance, private pension as-sets at $954.3 million represented an increased 15.9% of GDP in 2005 (see Table 1). This remained less than the approximately $1,295 million (21.6% of GDP) of collective savings held by NIB, but outpaced the comparable pools held by domestic life and health insurance companies of $688 million (11.5% of GDP) and credit unions, of $190 million (3.2% of GDP). Notwithstanding, the bulk of private individuals’ savings are in bank deposits, placed in 2005 at $2,612 million or 43.6% of GDP. The skewed distribution of deposit holdings, however, diminishes their retirement significance for most persons in the workforce, as more than 75% of the aggregate balances are con-centrated in less than 10 percent of the individual ac-counts.

The rest of this article summarizes the results of the 2005 Pension Fund Survey. This includes an overview of how such schemes are categorized, a description of the survey process and estimation methodology and an analysis of the profile and attributes of the various schemes in existence. The report then presents an analysis of the investment portfolio of these plans and concludes with a discussion on the outlook for the industry.

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