Potential Global Economic Risks Threaten Pension Plan Stability, Warns Central Bank Governor

Central Bank Governor Dr Kevin Greenidge has warned that potential global economic risks remain a threat to pension plan stability.

Speaking at the opening of the Eckler Pension Investment Conference on

Monday, he said that in addition to an increasingly ageing population,

under-funded pension plans, the low domestic interest rate environment and elevated inflation all pose an additional burden on pension funds even in an era of economic growth.

“As people live longer, an associated increase in contributions, payout, and dissaving is triggered. Government has sought to address these fallouts by reforming the National Insurance and Social Security Service (NISSS) to bolster its stability…[by] extending the retirement age and increasing the number of contributions to qualify for pensions,” he told the opening of the conference hosted via webinar.

However, Greenidge noted that low interest rates make it difficult to hit the required return needed to ensure the promised annuity payments, particularly in the case of defined benefit (DB) plans.

“Because defined benefit plans promise a specific payout at retirement based on a predetermined formula, their funding is heavily dependent on consistent investment returns and actuarial assumptions. In light of this, the low interest rate that persisted between 2008 and up to 2022 has incentivised plan sponsors to move to defined contribution plans,” he said.

The Central Bank Governor started his address to the over 100 pension plan experts with an overview of the performance of the Barbados economy, which he said was continuing a strong rebound, with tourism and the international business sector being the main catalysts for the economic surge.

“Barbados is back,” he declared as he outlined that the local economy had

recorded ten consecutive quarters of growth up to the end of September 2023 and was “expanding at a tremendous rate”.

He also noted that the country had been touted as the fifth-strongest economy in the world between January and September.

Speaking on the topic Barbados, A Safe Haven in a World of Economic

Uncertainties: The Impact on Pension Funds, the government’s top economic advisor said on the international front, volatile financial markets, elevated interest rates, increasing debt burdens, and geopolitical tensions are concerning.

“Mitigating these risks requires an understanding of these dynamics, prudent financial management, and a willingness to adapt strategies to changing trends,” he noted.