The possible suspension of private sector workers’ pensions is an idea that has been floating around the Cayman Islands since June.
And frankly, the more we at the Observer on Sunday consider it, the less we like it.
The plan is being sold now as a way for private sector employers to “balance out” as yet unspecified increases in work permit fees for foreign employees.
Let’s work that out for a paralegal employed by a local law firm who makes $60,000 per year.
The employer, who is paying some $3,000 on top of the paralegal’s salary (five per cent) for the worker’s pension will no longer have to pay that. However, work permit fees as proposed by government would go from $2,750 per year to $8,000 per year for that paralegal – an increase of $5,250.
That really doesn’t “balance out” at all, does it? In fact, it looks like that law firm will get hit with what amounts to an additional $2,250 payroll tax if they have to employ a foreign paralegal.
So, let’s say that firm employs a Caymanian paralegal.
No work permit fee there. But that Caymanian employee will also be seeing a $3,000 cut in pension donations for at least one year (according to government’s latest plan, anyway).
According to analysis done by one local pension fund, that person might lose more than $15,000 over the next 20 years because of that one year hiatus from pension contributions.
Some might consider that a drop in the bucket. But it’s not just one employee who is losing that money. The entire pension fund, with let’s say 15,000 workers in it – will be losing out on that $3,000 for one year at least and longer if that employee is an expatriate.
Start calculating $3,000 in one year’s losses on average for, say, 8,000 Caymanian workers who are in the retirement fund. That’s a $24 million hit in one year, before even considering what will be lost when expatriate pension contributions are cut.
All of sudden we’re talking about the long-term viability of a retirement system. In other words, what that system will be able to pay out to plan participants in their “golden years.”
If those contributions aren’t made over a period of years, the fund may find it difficult to keep its promises to those who contributed for decades.
And the responsibility will then fall to government to take care of those Caymanian workers who have stayed in the Islands. How many millions might that take? More than 24, we’d bet.
Rational and responsible arguments can be made in support of a pension suspension, or even the elimination of pensions for foreign workers. But we’ve not heard these well thought-out positions coming from government officials as yet. We hope some serious consideration is given to the matter before this proposal moves ahead.