Pension repayment uncertain

The Cayman Islands government may not be legally obligated to pay back pension contributions withheld during a proposed ‘pension holiday’ even though it is required by law to a pay a pension to civil servants.

Civil Service Association President James Watler

Civil Service Association President James Watler

Paying back civil servant pension contributions following the proposed suspension could end up costing government more than the estimated $40 million in savings it expects to get from reducing pension contributions this year.

The Caymanian Compass contacted Leader of Government Business McKeeva Bush to clarify earlier statements the leader made regarding the repayment of government employee pension contributions.

‘If the country can pay it back at some point, I am willing to attempt to do that, because I don’t want to be taking anything from anyone,’ Mr. Bush said Thursday. ‘The country is in a serious crisis, more serious than has been noted before. I will probably have to be making a statement in this coming week regarding finances.’

Mr. Bush made it clear there is no guarantee the pension money would be repaid.

‘It’s an aspiration, if the country can pay back at some point,’ he said. ‘But these are serious circumstances.’

Mr. Bush said there was nothing he knew about that would legally require government to pay back pension contributions withheld during a period of payment suspension.

Questions sent to Financial Secretary Kenneth Jefferson and Chief Secretary Donovan Ebanks about the matter had not been answered by press time.

The Cayman Islands Constitution, both the current document and the newly approved governing agreement, do provide protection for the payment of pension awards.

An award is defined in the law as ‘the grant and payment to any officer, or to his or her widow or widower, children, dependants or personal representatives, of any pension gratuity or other like allowance…in respect to the service of that office.’

Whether the term ‘award’ applies to a pension contribution, as opposed to a pension benefit paid to a retired government employee, was not clear.

Pension debt won’t help deficit

Although the Compass has spoken with several individuals familiar with government finances and the Public Service Pensions system, only one wished to comment for the record.

Public Service Pensions Board member William Adam stated that projected budget savings would not be achieved if the government’s intention was simply to pay the suspended pension contributions back.

Under the accounting system currently used by government, the amount to be repaid would have to be shown as a debt.

‘It cannot be ignored like it could be and was ignored under the cash-based accounting system, when the pension liability was not even valued until very recent years,’ Mr. Adam said. ‘This will mean that government is still left with a deficit budget.’

Even with the pension and other budgetary savings being planned, the Cayman Islands government is expected to end its fiscal year on 30 June, 2010 with an operating deficit of tens of millions of dollars. Government ministers have previously stated that Cayman’s financial situation would likely take two or even three years to fix.

Mr. Bush has previously said the pension holiday could last up to a year. The government has said it hopes a similar but optional proposal for private sector employers and employees will be presented in the Legislative Assembly in September.

Civil servants disagree

Civil Service Association President James Watler said Saturday that it was possible for the government to change the Public Service Management Law, the Public Service Pensions Law, and even the Constitution with regard to pension protections. But he said such an act would be seen as a bad faith initiative.

‘Both the law and the constitution protect the (pension) fund,’ Mr. Watler said. ‘The position of the Civil Service Association is that what the law and the constitution calls for is what has to happen.’

The Public Service Management Law requires that pensions be paid, and the regulations of that law set contributions to the fund at 12 per cent of a government employees’ salary (6 per cent paid by employee, and 6 per cent paid by employer). Any changes to the regulations requiring the 12 per cent payment would have to be approved by Cabinet.

Government could, for instance, leave pension requirements in the law and simply reduce the required contributions contained in the regulations to a nominal sum. A vote of the entire Legislative Assembly would not be needed to do that.

Mr. Watler said he believed the government should deal with its employees in a more transparent manner. He pointed out that no mention of a pension holiday for civil servants was made at a recent meeting between government officials and association members at George Hicks High School. He also disagreed with the terminology being used by government officials.

‘It’s not a pension holiday, it’s a pension suspension,’ Mr. Watler said.

Mr. Adam added that government needed to take steps to ensure the sustained viability of its pension fund into the future. He said a pension holiday does not help in that regard.

‘The result…is that all workers’ income in retirement will be reduced and future governments will have to increase social service payments because there will be more people in need of financial assistance,’ Mr. Adam said.