have sufficient income for their old age.

Finance Minister Grant Gibbons said Government's Green Paper on a national pension scheme debated in the House yesterday attempted to ensure senior citizens had an income when they retired without placing an unfair burden upon future generations.

Dr. Gibbons said demographic changes worldwide and in Bermuda have made it necessary to look at the pension issue because people were living longer and having fewer children.

Consequently, there has been pressure brought to bear on systems that provide care for the elderly.

In Bermuda he said the population grew 56 percent between 1950 and 1991. In the same period, the elderly segment of the population (over 65) grew 153 percent so there were 5,396 persons in that group in 1991.

The median age had also shifted from 25 in 1950 and is expected to be 37 by 2011.

Over the long term, this meant a smaller number of workers would be supporting a larger group of pensioners.

Government's contributory pension scheme now provides a maximum of $755 per month and the total assets in the fund were $299 million in October, 1995.

He said Government's financial obligation was no more than its role as an employer.

The current contribution rates were $41.44, split equally between employer and employees.

He said that $73 million in assets was paid in per year and $48 million was paid out.

Therefore there was "a nice buffer'' between what was paid in and what was paid out.

However he said that there were three areas where potential challenges arose.

They were in the areas of the long term viability of the contributory pension fund, the adequacy of pension funds and the safety and security of pension assets in private schemes.

"We see this as a developing problem,'' he said. "What is developing is a set of challenges. Government recognises that it is important that we put in place a framework to deal with these developing problems.'' He said the declining workforce and the projected corresponding increase in pension outlays could lead Bermuda into a negative cash flow situation.

In other countries such as Canada, the United Kingdom, Latin America and Hong Kong, this situation was already occurring.

The same situation could develop in Bermuda if it was not checked.

Dr. Gibbons said Bermuda's current contributory pension scheme was based on a "pay as you go system''.

He said the $20 paid in was paid out again to pensioners and was not retained.

As the numbers of workers fell due to declining birthrates, thus reducing contributions, Dr. Gibbons said an array of remedial systems had been put in place in other countries.

These have included increasing the rate of money paid in or increasing the percentage of salary that is paid into a pension fund. Reductions in benefits has also been a method used overseas.

"The Bermuda pension fund is not in any danger of being insolvent,'' he said.

But he warned these issues had to be addressed now or "we will leave to our kids and future generations a tremendous burden''.

Regarding the adequacy of current pension income, Dr. Gibbons said the maximum payment of $755 a month did not square with a recent household survey that reported Bermuda's over 65 population spent $3,500 on goods and services.

Dr. Gibbons said that elderly couples often made up this discrepancy by continuing to work after 65 or by using investment income, support from family, social assistance and accumulated savings.

A third issue that could be a potential problem was in the area of the safety and security of pension fund assets.

It was often the case that pension funds were not properly segregated and were paid out of current profits. If the business failed, then the pension benefits also disappeared.

One way out of this was to ensure that employers registered their pension funds so that even if the business failed the pension funds were not exposed to risk.

And this was one reason for the proposed National Pension Scheme which is not intended to replace the current contributory pension scheme.

Dr. Gibbons said there were several principles involved which included the segregation of pension assets, joint employer/employee contributions, the portability of pensions and a separate board of trustees to administer the funds.

As far as portability was concerned, the Minister said that the idea was to have an employee's benefit transferred to each successive employer's plan.

In the end, an independent body or Pension commission would administer the National Pension Scheme.

Dr. Gibbons said the target contribution level would be ten percent of the employee's salary shared equally between the employee and employer. The ten percent would be inclusive of the contributions to the current Contributory Pension Fund and would be phased in over five years.

The Minister said several concerns had been raised such as the impact of the new scheme on small businesses, guest workers and international business.

Dr. Gibbons said the current Contributory Pension Fund would continue to exist with adjustments because it had a broader role to play than just pensions as it also paid out disability.

The current scheme involves defined contribution schemes or defined benefit schemes and the National Pension Scheme would encompass both types.

The National Scheme, he said, prefers the defined contributions scheme because it does not define in advance what an employee will get at retirement.

It defines instead the amount of contributions that an employee or employer makes on a regular basis. An example of such a fund is the Contributory Pension Fund.

Defined benefit schemes on the other hand work from the other end because the amount an employee is entitled to at retirement is defined at the outset and the contribution is assessed from there.

Dr. Gibbons said the banks, Government and the utility companies used a defined benefit scheme but there were difficulties where issues of portability were concerned.

However, defined contribution schemes were easier to transfer because it was known how much had been contributed.

Dr. Gibbons said personal pension schemes would still be allowed under the National Pension Scheme to cater to small businesses and self employed persons.

Dr. Gibbons said Bermuda had looked at other countries' legislation and found many to be "burdensome and unnecessarily complicated'' and it was Government's intention to have broad and flexible legislation.

Such legislation would be before the House of Assembly before the end of 1996 and the pension commission would be set up by 1996 to help with preliminary aspects of the plan. It is expected to come into effect around 1997.

Shadow Finance Minister Mr. Eugene Cox (PLP) said the name given to the legislation was a misnomer because it gave the impression that there was a Government run scheme that will be applied to all.

In fact, the National Pension Scheme referred to many different schemes.

The most important areas of the proposed plan would be in its implementation and its impact on small businesses, individuals and the economy at large.

Mr. Cox said that Government had to ensure that controls were in place and that these were properly complied with.

In addition to the segregation of pension funds in companies, Mr. Cox suggested a periodic actuarial review to ensure there were no problems.

"It's very important that the funds are available when people expect them to be there,'' he said.

He said one advantage of the defined benefit pensions was that the employer promises to pay a benefit and is obligated to ensure that it can be paid.

Therefore it was important that the pension commissioners responsible for overseeing the plan made sure that this was done.

Mr. Cox said that one disadvantage of the defined contributory scheme was that the amount available at the end was uncertain and lower and middle income workers tended to suffer more.

Hybrid systems such as the cash balance plan at the Bermuda Industrial Union provided more generous benefits if people retired earlier or switched employers.

But a disadvantage was the higher cost and the fact long serving employees did not fare as well.

Mr. Cox said Government had to ensure that all those who had the ability were considered when the time came to choose Pension Commissioners.

Concluded in Monday's newspaper.

TREE PLANTED -- As Members of Parliament from both political parties looked on, Speaker of the House Ernest DeCouto planted a cedar tree outside the Sessions House yesterday to commemorate the 375th anniversary of Bermuda's Parliament.