Pension holiday failure

Low take-up makes pension suspension ineffective

Very few private sector workers in
Cayman have so far opted for a suspension of pension payments, the so-called pension
holiday, figures from pension plan administrators show.

The pension holiday came into
effect on 26 April after legislators amended the National Pensions Law in
effort to ease costs to businesses and give residents working in the private
sector more spending money.

Brian Williams, the CEO of Saxon
Administration, which administers the Silver Thatch pension plan, said: “The
take-up has been low, perhaps 80 persons so far, which represents less than 1 –
1 1/2 per cent of active membership.”

Sandy Chapell, manager of the
Fidelity pension plan has seen a similar take-up.

“We have 41 employees approved to
take the holiday, 13 Caymanians and 28 non-Caymanians, out of a total
membership of 2,542, which is 1.6 per cent of our total membership. We are
still receiving more forms daily, but I don’t expect the total applications to
go over 100.” The Chamber pension plan reported that 2 per cent of the active
membership had applied for the pension holiday. Robert Schultz estimated that
ultimately that figure might double, but still remain below 5 per cent.

Some companies have taken the
approach of making a blanket decision not to participate in the pension holiday
as an employer. The pension law requires that both employer and employee voluntarily
agree to the suspension of pension contributions. Foster’s Food Fair chose not
to agree to the pension holiday.

“At Foster’s we felt that it was in
the best interest of our staff not to participate in the pension holiday,” said
Kevin Loughery, marketing manager at Foster’s Food Fair IGA. “The company
therefore decided not to take part.”

Cayman Free Press Business Manager
Teritia Peart said even though the company offered employees the choice, it
wasn’t taken up by many employees.

“We recognise the value of pensions
for our employees and as a company policy encourage employees in this regard,”
she said. “However as we recognised our employees may have individual
preferences, we just informed staff on the options available within the
Pensions Law.”

At Cayman Free Press only two out
of 95 employees opted for the pension holiday. 

When it was first announced,
Premier McKeeva Bush said the suspension of private sector employer pension
contributions was needed to alleviate some of the cost burden for businesses
caused by the increase in work permit fees.

An additional intent was to help
stimulate the economy, something Employment Minister Rolston Anglin spoke about
after the plans for the pension holiday were announced.

“This measure is something that
government is doing to try to put people where they have more money in their
pockets…and should result in some general easing in our economy,” he said.

As an economic stimulus flow must
be considered ineffective, the figures from pension fund administrators suggest
that very few businesses will see any improvement of their cost base, and there
will not be a significant number of people with more disposable income.

“We never anticipated the pension
holiday to alleviate costs,” said Mrs. Peart. “The time and cost to administer
the forms is as much as the potential cost savings.”

In addition, she said it would be
difficult to attract high quality staff with the specialist expertise required
by the nature of the media business, without offering pension benefits. 

The Ritz-Carlton, Grand Cayman, the
largest private sector employer in the Cayman Islands, has seen a number of
inquiries regarding the change in the pension law and the actions required to
temporarily suspend contributions, said Human Resources Director Janette
Goodman. She did not want to speculate how many people will ultimately opt out
of the programme at this point, but said: “The Ritz-Carlton does foster a
culture which values both long-term career planning and saving. We want to
ensure that our ladies and gentlemen fully understand the long-term
implications of taking a pension holiday.

“Of course we will assist all of
our employees should they choose to do so with the legal requirements,” she
added.

For pension administrators the low
take-up is good news. Initial plans for the pension contribution suspension
aimed to make the pension holiday in the private sector mandatory. This could
have eroded the asset base of the pension funds and smaller funds would have
been particularly affected.

However, the voluntary nature of
the pension holiday offered employees little incentive to opt for a suspension
of their own pension contributions. The increase in take-home pay has become
less attractive, when contrasted with the loss of 5 per cent employer pension
contributions and a total absence of personal pension provision, even if only
for a limited time period.

“I think most people have got the
message that it is not a smart move and the employees would lose out on their 5
per cent employer share of contributions,” Ms. Chapell commented.

Mr. Williams conceded that there
may be a few individual cases, especially with smaller companies, “that will
benefit a bit from not paying that 5 per cent” employer pension contribution.

This sentiment is shared by Phil
Jackson president of the , which is currently 
Mr.  before the survey results are
released,

However, Mr. Williams believes that
in the majority of cases the reliance on a suspension of pension contributions
should be cause for concern for a company.

“My sense is though that any business
that is in this predicament needs to evaluate their business model carefully,
because if 5 per cent on labour will make a significant difference in improving
your business condition, then it is very likely that your business model needs
to change,” he said.

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3 COMMENTS

  1. The update of the opt out scheme will be increasing over time as people renew their annual contracts with employers. If you don’t have work then you don’t pay pensions. As new work is taken on especially in the more competitive industries such as construction I think the uptake of the scheme will increase to allow law abiding firms to compete with the ones who don’t pay pension currently.

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  2. I cannot be the only person on this island that is aware of why this "pension holiday" has bombed out cold. The majority of the work force i.e. the lay person just does not have enough information to know what to do. What else would be expected when they hear in the media that to opt out of the pension scheme could affect their pension investment by hundreds of thousands of dollars. I dont know who keeps blowing hot air into this propaganda balloon but…again what do you expect. I for one opted to deposit my contributions into my own pocket where I know that it is safe.

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  3. The beneift of pensions to employees and the government is that they are supposed to provide some income options for employees once they retire and make them less of a potential burden for the government. This should be something that the government wants to promote and maintain irrespective of employee nationality or because it is a cost saving for businesses to ‘offset increased work permit fees". Phooey! There is no offset cost savings! – that was government spin!
    And as for the argument that not paying pension will allow businesses to compete with the companies that are not paying – then this is just an illustration of the failure of the government and the Pensions Office in enforcing the law. Make those companies pay the costs of doing business like everyone else! Or penalise them!

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