The mandatory pension requirements in the Cayman Islands will be insufficient to fund retirement, according to a report on the review of the Cayman Islands National Pensions Law.
Superintendent of Pensions Cyril Theriault spoke about the inadequacy during a presentation made at the Life Underwriters Association of Cayman’s 2008 Seminar and Awards Function held Tuesday at the Westin Casuarina Resort.
One of the four broad conclusions reached in the report dealt with insufficiency of pension amounts.
‘The current pension contribution rules will not produce adequate retirement income,’ Mr. Theriault said the report found.
The report – which was submitted by Mercer Human Resource Consulting last March but has still not been tabled in the Legislative Assembly – showed that under Cayman’s current laws a full career, low income employee who started working at age 18 and retired at age 60 would only have an annual replacement income of 50 per cent of his or her salary.
‘The general consensus is that you need about 70 per cent of your annual salary to have an adequate retirement… or to be happy in retirement,’ Mr. Theriault said.
High income earners who attended post-graduate institutions and started their careers at age 25 earning $60,000 and retired at 60 would only have a replacement ratio of 24 per cent.
To address the gap with respect to benefit adequacy, the Mercer report recommended several changes to the National Pensions Law, including: increasing the age of normal retirement from 60 to 65; increasing the age of early retirement from 50 to 55; and raising the maximum annual earnings on which an employer must pay pensions from $60,000 to $72,000 initially and then allowing increases to that figure based on inflation indices.
The report also recommended the minimum pension contribution rate increase from 10 per cent to 12 per cent, split equally between employer and employee.
Although a 10 per cent pension plan contribution rate is competitive for mandatory pension schemes globally, the Mercer report stated it is lower than other countries like Bermuda, Australia and Canada when taking into consideration those countries all have some sort of social security or other old-age income supplement in addition to the mandatory pension plans.
The Mercer report also noted that Cayman’s current normal retirement age of 60 is inconsistent with most developed countries that specify a normal retirement age of 65. The United States is even increasing the normal retirement age for full benefits under its social security programme to age 67.
Another recommendation of the report is that voluntary contributions to pension plans be encouraged. However, voluntary contributions are currently subject to the same restrictions as mandatory pension contributions, meaning they cannot be withdrawn before retirement. The report recommends these ‘lock-in’ provisions with regard to voluntary contributions be removed.