Pensions are currently hot topic of discussion in the Cayman Islands. In the second of a three-part series on pensions The Observer On Sunday gives insight into frequently asked questions.
1. When can an employee retire?
The normal retirement date is the first of the month on or after the employee’s 60th birthday. However, the participant can retire earlier – as early as the first of any month on or after his/her 50th birthday. Alternatively, the participant can postpone retirement beyond his/her normal retirement date.
2. If a participant leaves the Cayman Islands, can he/she cash in on their retirement early?
Upon terminating work and leaving the Cayman Islands, participants have options with regard to accessing their funds. Participants may opt to transfer the cash value of their pension plan to an alternative overseas pension plan upon their relocation. Alternatively, participants may choose to cash in on their investments and receive a one-time, lump-sum payment.
To access their funds, participants must satisfy three criteria. The participant’s employment must be terminated; he/she must cease to live in the Cayman Islands; and he/she can not have made contributions to his/her pension plan by or on behalf of the participant for a period of two years or more.
However, if the value of a participant’s pension is under CI$5,000 they can have access to the funds, most typically, within six months of leaving the island. (Pensions under CI$5,000 are at the discretion of the administrator of the plan.)
3. What if a participant changes jobs and/or moves pension plans?
Pension funds are transferable from one registered pension plan to another in the Cayman Islands upon changing jobs or plans. There is usually no transfer charge.
4. What if a participant gets divorced?
Under the National Pensions Law, pensions can be split upon divorce, though only for contributions paid in during the conjugal period and not anything prior to it; however it depends on the court ruling. For example, if a court ruling stipulates that pension assets should be split, the spouse claiming must provide a certified copy of the court order, sign an enrollment form with the respective pension plan, and provide a government-issued ID. Based on the stipulations of the court order, an account will be set up and funded from the participant’s account.
5. What happens to a participant’s benefits upon death?
If the participant dies before they start to receive their pension benefits and they have a spouse, the participant’s pension will be re-registered in their spouse’s name; all money goes to the spouse and none is earmarked for the child(ren).
If the spouse was to remarry and then die, it would go to the new spouse and not the child(ren). However, if there is no spouse, the pension is re-registered in the name of the dependent child(ren) of the participant.
If the participant does not have a spouse and/or dependant child(ren), their investments can be cashed in by their named beneficiary or their personal or estate representative
If the participant dies after starting to receive their pension, the death benefits payable will depend on the pension option they previously selected upon retirement. Unlike if a participant dies before they start to receive their pension benefits, there is a contingency for the dependent child(ren). All of the pension benefits go to the spouse unless there are dependant children, in which case it is split; 50% to the spouse and 50% to the child(ren).
6. What are additional voluntary contributions and what are the benefits?
In addition to a participant’s basic contributions (10% of an employee’s earnings required by law), a participant can make additional voluntary contributions (AVCs).
AVCs are extra money paid by an individual into a company pension plan to improve the benefits he or she will receive on retirement.
There are many benefits associated with AVCs. They allow the participant to boost their pension investment by as much as they want, and they allow them to save through the convenience of payroll deductions. AVCs give participants the flexibility to start, stop or change the level of contributions at any time. Offering more control, participants can decide where to invest their AVCs depending on the plan.
As with basic contributions, participants cannot withdraw AVCs until retirement, or as otherwise stipulated by the National Pensions Law previously explained.
Brian Williams is CEO of Saxon Administration, the agents for Silver Thatch Pensions.