Pension-for-property swap ‘not bad idea’

But pension providers say Solomon’s plan needs work

Representatives from some of the
Cayman Islands’ major private-sector pension services providers said Wednesday
that they didn’t believe it was a bad idea to allow withdrawals from individual
pension funds for home or land purchases.

However, some of them voiced
concern about the future funding of the pension plans that would take a hit if
such withdrawals were allowed – even on a limited time basis.

“This is not a bad idea, but it
needs to be refined,” said Desmond Kinch of Overseas Asset Management, who
serves as Fidelity’s asset allocation advisor. “(George Town MLA) Ellio
(Solomon) is right that this would encourage wider home ownership and make it
easier for people to save enough to make a deposit.

“However, I think that in
conjunction with this suggested amendment, the (pension) contribution rate
needs to be increased,” Mr. Kinch said.

“Ellio’s idea would be good if it
was combined with an increase in contribution rate; a requirement that any
withdrawal from someone’s pension plan be used to buy a piece of land on which
the person intends to build their principal residence or to buy their principal
residence; and a further requirement that if someone sells that land or house
and remains in the Cayman Islands, they have to either use the funds to buy
another principal residence or deposit the funds back in their pension
account,” Mr. Kinch added.

Mr. Solomon’s proposal has been
filed as a private member’s motion. He said Tuesday that he is hoping it will
come before the Legislative Assembly next month.

One-time withdrawal proposed

The motion asks the government to
allow Caymanians to make a withdrawal of up to $35,000 from their pension for
the purpose of providing a deposit to a bank for the purchase of a home.

The one-time withdrawal could also
be used to buy an apartment or a piece of land, or for the construction of a
new residence, Mr. Solomon said.

He said he hoped the opportunity
would be given to both public and private sector employees. The motion as
written specifies ‘Caymanians’ only, but Mr. Solomon said it was possible that
expatriates could also be included in the scheme.

The issue that the motion doesn’t
address, Mr. Kinch said, is how to keep someone’s retirement fund solvent if a
temporary withdrawal is made.

“The problem with reducing the
amount of savings available for retirement spending – if people can use funds
in their retirement account to buy a property without topping up their account
at the same time – is that you can’t take the equity in your house to the supermarket
or use it to pay your CUC bill when you retire,” Mr. Kinch said.

A 2006 consultant’s report done on
the Cayman Islands private sector pension systems identified that the current
required contribution amount, 10 per cent of an individual’s salary (5 per cent
paid by the employee and 5 per cent paid by the employer) is not enough in most
cases to cover a person’s retirement.

The National Pensions Law allows
individuals to contribute more to pensions if they wish, but their employer
does not have to match those contributions beyond 5 per cent of salary.

The idea of a partial or temporary
withdrawal of pension funds is not a unique one.

Similar schemes elsewhere

According to Mr. Kinch, Singapore
allows pension contributors to take out part of their funds to buy a principal
residence, but the pension contribution limit there is up to 35 per cent of salary.

Fidelity Pension Plan
administration manager Sandy Chapell said Canada allows for the borrowing of
pension funds to buy a first home, but that amount has to be paid back over a
certain time. If it isn’t paid back, taxes can be assessed on the amount owed.

“There needs to be a method of
repaying the money back to your pension so that when you do retire you can
afford to live and not seek Government assistance,” she said.

Mrs. Chapell said local pension
providers have been keen to invest in Cayman’s real estate market for a number
of years, in any case.

“From my point of view, the
Government should be looking at revising the Investment Regulations to allow
the plans to invest in the local real estate market, up to a maximum of 5 per
cent of the total plan assets,” she said.

The Cayman Islands Pension
Providers Association intends to discuss the matter further at its next board
meeting, Mrs. Chapell said.


  1. Yes, but what about expatriates who have been living and working in Cayman for a number of years, some without any hope of ever getting PR or Status? How about giving us our money when we are leaving, say 6 months’ after departure so that we can afford to buy a home in our own country?

  2. I have an even better idea on this subject. Why not have the Cayman Monetary Authority just print $35,000.00 extra for everybody who needs a down payment for a house? Wouldn’t anything to print it and this way it doesn’t hurt your pension.

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