A Barbadian actuarial consultant has cautioned that while there appears to be a shift away from defined benefit pension plans to defined contribution schemes, there was need to carefully assess the risks and advantages of each. 

With defined benefit plans employee contributions are fixed, benefits are defined and employers bear most of the risks associated with the plans. With defined contribution pension plans, employees shoulder more of the responsibility for saving for retirement with contributions defined but benefits variable. 

Charles Herbert, who addressed the subject of risks associated with pension plans during a seminar on The Changing Face of Pensions at Sherbourne Conference Centre last Friday, said while defined contribution plans were increasing in popularity, he warned that some employers may design a plan poorly and then employee benefits prove inadequate. 

With defined benefit plans, Herbert said companies that were "heavily dependent on labour" would face increased pension costs as well as those with "generous plans were obviously more at risk". 

Another area of concern for the actuary was the fact that pension plans in Barbados were generally providing "low" benefits for high income earners. 

"Perhaps we need to do a better job persuading higher earners to make more voluntary contributions in order to get that benefits up . . . . Generally, the pattern I am seeing is that while we tend to make reasonable provision for lower earners, the rates I have seen for high earners are low," Herbert told participants in a seminar hosted by Fortress Caribbean Pension Fund. 

Herbert, who joined a panel comprising Roger Cave of Fortress Caribbean Mutual Funds and Laurence Siegel of the Ford Foundation in New York for discussion on the subject, also addressed the issue of implications of currency shifts and devaluations on pension plans. 

While Siegel noted that pension funds invested in the stock of countries with serious currency movements posed a serious risk, Herbert said examples in the Caribbean provided a different picture. 

"Jamaica has been a defined benefit haven and generally the schemes there have done well through their devaluations. They have been able to maintain their real value and they have been able to maintain reasonable increases to keep pensions up. I would say that system there has not failed the population despite devaluation. 

But there have been some extreme cases like Guyana where we have seen funds in Guyana with substantial United States assets and these funds became very rich as the Guyana dollar went south," Herbert revealed. 

According to the consultant, in these "extreme cases" the surpluses had not been passed on to pensioners. 

In the Trinidad scenario, currency fluctuations had not impacted on that country's mainly defined benefit schemes. He assessed: "Probably 80 per cent of the pension funds in Trinidad and Tobago at this stage look as though they would not need another contribution in order to pay benefits."