To Pension or not to Pension

Looking at a 76-page
investigation recently completed by the Complaints Commissioner’s Office, one
might be led to believe the Cayman Islands, at least in practice, does not have
a legally-mandated retirement system for private sector employees.

According to the
review, nearly 700 local businesses weren’t paying pensions to employees in a
timely fashion or at all.

More than 1,600 cases
where alleged non-payment violations had occurred were listed as under
investigation by the regulatory agency, the National Pensions Office. Those
cases were considered ‘less of a priority’ by the organisation, according to
the complaints commissioner.

Although specific
companies were not identified in the report, it was stated by several
individuals who provided information in the commissioner’s investigation that
their pension payments had been taken by employers who used the money to pay
salaries or for other private purposes. 

“They’re clearly not
isolated incidents,” Complaints Commissioner Nicola Williams says. “We started
digging and that’s when we realised just how many companies were non-compliant
with the pensions legislation.”

In her report,
Williams described the situation with national pensions as one of the most
“obvious examples of a systemic failure by a government entity”, a comment
which referred to the National Pensions Office as the regulator.

But the blame was not
laid solely on the office or the appointed board of directors which governs it.
The pensions office has long been understaffed and overworked. It faced
excruciatingly slow progress in court when charges were brought against
companies that failed to pay into their employees’ retirement funds, and
suffered from an apparent lack of support and communication between government
agencies that dealt with and assisted the country’s private sector pensions
system.

“Until very recently,
there was little political will both by the ministry responsible to implement
improvements, and generally…(to) force delinquent employers to either comply
with their pension obligations or to cease trading,” Williams wrote in her
report’s findings section.

Given the abject
failure of seemingly every aspect of the private sector pensions system,
Williams says it was clear that a weak regulator and a weak law, combined with slack
enforcement has created a system where obeying the law was viewed as optional.
That failure, she said, is what needs to be addressed immediately by
government.

“You can’t look at
one thing in isolation,” she says. “You have to look at it across the piece. If
you do anything less, it’s like shuffling the deck chairs on the Titanic,
because the boat is going down.”

 

Changes in attitude

Williams admitted the
research and scope required to look into the pensions issue was daunting for
her five-person office at times, and that wholesale change won’t come easily.
However, she said that change must occur if Cayman is to continue having a
private sector pensions system.

“Paying a pension to
people that work for you is a moral, social and legal obligation,” she says.
“As harsh as it might sound, if you can’t afford to run a business and be
compliant with the existing laws in the Cayman Islands, then you’re breaking
the law and you shouldn’t be running a business.”

Among the issues the
country needs to address is a feeling among some business owners that pensions
are optional or not really necessary.

“A pension isn’t a
privilege if it’s being taken out of your salary, it’s a right,” Williams says.
“The idea is its taken out and invested in the funds so you can have it in your
golden years.” 

“People tend to think
‘oh that’s something I can think about in 20 or 30 years time, it’s not
something I need to think about now. I suppose nobody ever likes to think of
themselves as old.”


Recommendations

Harsher penalties
(both fines and sentences) for non-compliance in paying employee pensions and
the closure of certain loopholes for employers should be addressed in
amendments to the National Pensions Law. Pension funds should also not be used
to pay for legal fees in court cases. 

One Crown counsel
(prosecutor) should be assigned to work solely on pension enforcement cases, at
least for the near term. *Pensions inspectors must be given the power to enter
any and all businesses to conduct reviews, even if those businesses are run
from a private residence. 

Those who victimise
whistle-blowers for reporting pension non-compliance should also be punished
under the law. There should be a ‘tip line’ set up for anonymous reporting of
pension violators.

Better public education
about retirement savings systems by both the pensions office and the plan
providers is needed.

The National Pensions
Office needs a clear mandate and must not be afraid to use its powers under the
law to the full extent. The office should also be given more inspectors.

The pensions office
should differentiate between employers who aren’t paying into worker pension
accounts because of simple negligence and those who are wilfully flouting the
law by refusing to pay.

There must be better
communication between the Immigration Department, the Trade and Business Board
and the National Pensions Office on pension-related matters.

Private sector
companies should not be able to bid on government contracts unless their pension,
health care payments and other licensing requirements are up to date.

Pensions inspectors
need better investigative training to help carry out their duties more
effectively.

Some of these items,
such as additional staffing and training of pension inspectors, will cost
money. By law, the government is required to at least attempt to follow all
recommendations of the Office of the Complaints Commissioner to the best of its
ability.

Williams says paying
increased costs now will save taxpayers money in the long run.

“If you think its
going to cost you money now, you wait,” she says. “If you don’t do it…you see
what it will cost you in 20 years time. When there have been no substantive
changes to the way the pensions operate, people are retiring, they don’t have
enough money to live on and they have to depend on state assistance. Where is
the money going to come for that?”

“The pressure will
have to come from the general public being much more observant and diligent
with regards to their pension contributions.”

 

Open records
revelations

A series of reports
from the National Pensions Office obtained by a private citizen under Cayman’s
Freedom of Information Law revealed some surprising deficiencies in how the
office tracked companies that weren’t paying into workers’ retirement funds.

Those records were
reviewed as part of the complaints commissioner’s investigation.  

They reveal that the
pensions office had no record of the majority of the delinquency reports ever
being made; those reports are required by law to be filed each month by the
private sector pension plan providers if they are aware of companies who have
not made good on pension payments to employees.

Whether those reports
were actually made, or if the office simply had no available records wasn’t
clear from the documentation released under the FOI Law.

For instance, from
July through October of 2008, there were no records available for one plan
provider – British American – from the National Pensions Office.

Later on, between
November 2008 and February 2009, British American noted that more than 700
companies registered with its retirement savings plan were delinquent on
payments, but records pertaining to whether those companies were newly
delinquent or had been in trouble before were not available. Also, records of
enforcement efforts based on those complaints were spotty or simply
nonexistent.

Another plan
provider, British Caymanian, only had records on file with the National
Pensions Office regarding delinquent companies for four of the 12 months
between July 2008 and June 2009.

Acting Pensions
Superintendent Amy Wolliston stated in her reply to the open records request
that some delinquency reports did not exist because the National Pensions
Office had stopped “normal processing” of delinquency reports in the
government’s 2007/08 financial year following the implementation of a new
standardised submission format.

 

Delinquency reports

Through May 2009, the
pensions office had received 44 delinquency reports from pension plan providers
and had processed half of them, she said.

“Although some
reports were not formally processed, they were periodically reviewed by staff
and contact made with some employers who were reported delinquent,” Wolliston
wrote. “When an employer appears on a delinquency report, they remain on the
report…until the case is resolved.”

Given the sheer size
and scope of the problems faced by the National Pensions Office in the
regulation of pension payment non-compliance, questions have been raised about
the ability of that office to continue on in its enforcer’s role.

Prior to the release
of the complaints commissioner’s report on pensions, Education Minister Rolston
Anglin had said it was his intention to abolish the National Pensions office
and put its regulatory responsibilities under the Cayman Islands Monetary
Authority. A newly-created Department of Labour and Pensions would handle
enforcement of pension non-payment.

Anglin indicated the
new department would also be able to inspect local workplaces for both labour
and pensions issues, rather than having two separate agencies arrive at
separate times to perform different inspections.

“This will lead to
more efficient utilisation of government’s human resources and, for businesses,
it will create less disruption to their operations,” he said earlier this year.

It was not clear what
would become of the National Pensions Board. It is possible the entity could
simply be abolished, or turned into an advisory body to assist the Department
of Labour and Pensions.

The complaints
commissioner did not make recommendations one way or the other regarding how
government should structure the national pensions system going forward.

“I just want the
system to work better,” Commissioner Williams says. “Whether it carries on in
its existing form, or if it moves onto…CIMA or if there’s some other way, I
just want it to work. But the only way it can work is if there’s root and
branch change.”

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