The pension contributions mandated by Cayman law will not be enough to provide adequate retirement benefits, said Superintendent of Pensions Cyril Theriault Thursday.
Speaking at the monthly meeting of the Cayman Islands Society of Human Resource Professionals, Mr. Theriault said a complete actuarial valuation of the pension plans in the country is required.
‘We already know what the first result of that valuation will be,’ he said. ‘The contribution of five and five (five per cent of earnings from both the employee and the employer) won’t be enough.’
Mr. Theriault said there were only two things that could be done by the Government to correct the situation: either raise the amount of the contributions by employers and employees ; or increase the age beyond 60 for when retirees can start collecting benefits.
‘Government will have to look at these options,’ he said.
Deputy Superintendent of Pensions Amy Wolliston said the goal of the pension plans is to accumulate enough money in a pension account to have the retiree collect two-thirds of his or her final salary each year after retirement.
‘Two-thirds might be ambitious, but that’s the goal,’ she said.
She said the current five and five contribution is not adequate, especially for people who started making contributions at an older age.
‘Ten per cent is not a practical contribution for some one who started making payments when they were 40,’ she said.
Mr. Theriault agreed that older people need to make arrangements for their retirement beyond the standard pension contributions.
‘Someone who starts paying when their 52 will have benefits, but they’ll be a pittance,’ he said.
Ms Wolliston said employees could do two things to ensure they had adequate funds to support their retirement.
One thing employees could do is voluntarily pay a percentage higher than five percent of their regular earnings into the pension plan.
The other, would be make regular contributions to an investment fund or savings account.
‘But they would have to leave that money there until retirement and not touch it,’ Ms. Wolliston said.
Ms Wolliston said that making additional voluntary payments to a registered pension plan is a good option for most people because they should get better results in a large plan.
Another group at higher risk of having inadequate retirement funds from pension benefits are those on the lower end of the pay scale, Ms Wolliston said.
‘These people need to be paying in more to their pension plans, but quite often, they’re the ones who can least afford to make any payments at all.’
The fact that the current five and five contributions will be insufficient to meet retirement needs for most people is not a surprise, Mr. Theriault said.
First Superintendent of Pensions David Richardson recognised the shortcoming and spoke of it in the Guidance Notes he created.
Increasing the pension contributions of employers and employees was once envisioned, but no clear direction has been decided at this point.
‘This is entirely Government’s decision,’ said Mr. Theriault, ‘And after the elections, I’m sure they’ll be looking at this carefully.’
The actuarial valuation was supposed to have commenced last year but Hurricane Ivan delayed it, Mr. Theriault said.
Instead of having each pension plan conduct its own actuarial valuation, the exercise will be undertaken on a national level, with Government and each of the registered plans contributing to its cost.
Mr. Theriault said he expected the valuation to be completed by the end of the year.