Employers cannot freeze pension contributions until changes to the law have been made, warned the minister of employment Rolston Anglin.
The minister issued a statement on Thursday clarifying comments about a ‘pensions contributions holiday’ made during a government press conference a week earlier.
To combat any confusion that the ‘holiday’ was already in effect, Mr. Anglin issued the statement saying it was ‘important that employers, employees and the general public were aware that there is no pension contribution holiday currently in effect and that the implementation of any pension contribution holiday would require enabling legislation.’
At a televised press briefing on 2 July, Leader of Government Business McKeeva Bush announced plans to introduce a hiatus of payment of mandatory pension contributions for local private businesses.
‘The proposed pension contribution holiday is not a general suspension of pension contributions but is a specific, targeted suspension due to the current economic climate. There are many details yet to be ironed out, such as the conditions and length of time it should be in effect,’ Mr. Anglin said.
He said the ministry, after consulting with the National Pensions Office, had decided to ‘be proactive and ensure that there is no confusion regarding the pension payments due until the details of the suspension/holiday are worked out and executed’.
While the move may assist employers and employees caught in a credit crunch and suffering in the economic downturn, pension experts say that in the long run, employees will be considerably out of pocket.
Sandy Chapell, chair of the Cayman Islands Pension Providers Association, said she calculated that a 40-year-old employee paying US$600 a month in contributions would lose nearly US$10,000 if a six-month suspension was put in place. ‘If the average rate of interest is 5 per cent over the next 20 years until they retire, that would amount to $9,600,’ she said.
Ms Chapell earlier wrote to Mr. Anglin warning of the downfalls of suspending pension contributions.
She said there were 700 delinquent employers who were currently failing to pay employees’ pensions. ‘It will be very difficult to get those employers to start paying pensions again if they’re not paying it now,’ she said.
She admitted that a pension contribution holiday might enable those employers to catch up on payments, but feared that it may encourage even more to stop paying pensions after the suspension is lifted.
In the association’s letter to Mr. Anglin referred to the Mercers report on proposed changes to the Pensions Law 2007, which stated that Cayman’s current 10 per cent pension contributions were insufficient for a person to retire. ‘By suspending pension contributions for a period, this will only exacerbate the situation. The financial impact on a member’s retirement income by suspending pension payments has not been considered,’ the letter stated.
The National Pensions Office, in the release from the ministry also reminded employers that the pension’s law is ‘in full operation and employers and employees are still required by law to make contributions on earnings on a regular basis.’
Cyril Theriault, Superintendent of the National Pensions Office, said he would need to see more details of the planned suspension before he could comment on it.
‘There are a lot of unanswered questions about this, for instance, is it going to be long or short? Is it going to be voluntary? Is it going to override employment contracts? Why are they doing it? What is the rationale?’ he said.
Pensions contributions are due to the pensions office by the 15th of the month.
Business owners and employees who have questions about their pension contributions are encouraged to contact the National Pensions Office on 945 8960 or visiting (www.npo.gov.ky)