Pension for property plan has a catch

Caymanians will soon be allowed to withdraw up to $35,000 from their private sector retirement plans to purchase a home, a piece of property, or pay off an existing home loan. 

However, there’s a small catch.  

Home buyers that do not currently own a property who make withdrawals from their pension accounts to help meet a down payment for their new property would have to pay the full amount back into the pension fund if they sell the home prior to retirement.  

According to the amendments: “Where before attaining the normal retirement age, a person sells the dwelling unit purchased or constructed or the residential land purchase through the use of a deposit … the person shall, upon completion of the sale return the original amount of deposit or 10 per cent of the fair market value of the dwelling unit or residential land, whichever is greater, back to his pension plan account.”  

Not paying back the pension contribution in such a case could lead to a $20,000 fine or two years imprisonment upon conviction.  

If the property or land purchased is kept until after retirement age, the money withdrawn would not have to be given back when and if the property is sold.  

The bill also requires slightly higher contributions to the pension plan if a person makes a withdrawal under the amended law. According to the amendments: “In addition to the amount the person is required to contribute to a pension plan … [the person shall] contribute an additional amount of 1 per cent of his earnings to the pension plan from the month immediately following the date of the issuance of the cheque [for the down payment, property purchase or mortgage payoff].” 

The added 1 per cent payment to the person’s retirement fund, which would raise the typical 5 per cent pension contribution to 6 per cent, would continue for either 10 years from the date, until the total amount of contributions equal the amount withdrawn, or until the person attains retirement age – whichever comes first.  

It would also be an offence under the amended pensions law for an employee making a withdrawal not to pay the additional 1 per cent contribution.  

The person’s employer is not required to make any additional pension contributions above and beyond the legally mandated 5 per cent of salary if their employee decides to make a withdrawal from their retirement account.  

The lawmaker who initially proposed the pension for property exchange, Ellio Solomon of George Town, admittedly didn’t get everything he proposed as part of the pension-for-property swap last year. However, Mr. Solomon said he thought the compromise reached in the end was “reasonable” and would increase home ownership among Caymanians.  

“I believe that the Cabinet wanted to try to strike a balance … in terms of being able to offer benefits to the people and at the same time mitigating a bit of the risk [to the pension plan],” Mr. Solomon said. “There’s no such thing as a free lunch.”  

Government pension advisers have questioned what would occur if a significant amount of money was withdrawn from an individual’s pension scheme under Mr. Solomon’s proposal and not paid back.  

Mr. Solomon said it was unlikely a 1 per cent additional pension contribution for 10 years would make up the withdrawn funds anyway, unless the person making the withdrawal was earning quite a bit of money and wanted to take only a small amount from their pension.  

“No one making that 1 per cent contribution is going to fully pay back the money [taken from the pension plan],” Mr. Solomon said. “I think it was an even compromise.”  

 

Civil servants left out  

Changes to the pensions law by legislators only applied to the National Pensions Law, which governs private sector retirement plans.  

The civil servants pension schemes, governed under the Public Service Pensions Law, were not included in the legal changes. Therefore, Caymanian civil servants will not be able to make withdrawals from their accounts for the purchase of a first time home or land.  

Mr. Solomon is hopeful lawmakers can change that in future legislation  

“I have always wanted this for all employees and that would include civil servants,” he said. “I intend to do so.” 

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10 COMMENTS

  1. Changes to the Pensions law need to be carefully calculated before rushing into.
    What happens if an individual has borrowed up to 35,000 and because of unprecedented illness or circumstances is proven beyond a reasonable doubt unable to pay back the amount borrowed from their pension fund?
    As I wrote earlier this move needs very careful and strategic planning and not just a bait and switch to gain votes in 20113. After all its not Elio’s or govenment’s funds pensioners will be withdrawing but it is their very own assets.

    We have to be very careful with these fly by night proposals that will cost the people and not government.
    I think this is just political postering. Advice coming from a government of sharks that Dipping into your retirement is a good idea needs to really be examined more closely. It sounds too good to be true. This may appear to be a simple process but could have negative and unprecedented repercussions.
    So how is your pension going to be replaced in the event the fund is cleaned out completely? Why should people be encouraged to begin dipping into their retirement fund, is it really the wisest move? Are people now allowing Elio Solomon to make irrational decisions for them? The government is already default in contributing to the civil servant’s pension fund so are most of the local businesses i.e. the Chamber of commerce members! I’m sure the chamber working for themselves as usual whispered OK to this into the Premier’s ear, who dropped the ball into Elio’s hands so he can take the fall when it backfires!
    I’m sure the Chamber of Commerce gave the nod as both businesses and government are at fault for mismanagement of private sector workers as well as pension fund for civil servants alike !
    There’s a high risk that at the end of the day, there’s going to be some off the wall excuse, the Auditor General might get fired again’ since he will have to deal with his haters who must be held accountable for the public purse including our pension which is our food that is being watched by a big hungry Dog! don’t get me wrong, metaphorically speaking, the dog is complimented more than one dog/ person…Wake up Cayman do not dance to every tune that sounds good always listen to the message of the lyrics.Listen to your heart. Am I doing the right thing. Is this just another political ploy?
    May I remind everyone that a really good government looking after the needs and welfare of the people well would be more creative and put forward a more comprehensive plan in front of its people, like government GRANTS and so forth, not borrow money from yourself! instead of giving tax and fee brakes to rich millionaire developers like Mr. Ryan and Mr. Dart who our UDP government chose to look out for very well. When election time comes around they’ll want you to praise them for allowing you to borrow money from yourself!
    Helping you is offering you a government GRANT out of the billions they have wasted, not dipping into your pension fund! It’s a cheap shot at your intelligence.

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  2. To Tiger:

    Don’t you belong on _other blog sites_? Your transparent language, consistent inability to spell Ellio correctly as Elio, along with your relentless attempt at trashing this man personally, is a signature as not only a disgruntled long term Ellio hater, but a testament that you have no consideration as to what is factual, accurate or decent. Your only objective here, has been and always have been to trash this man.

    The FACT is that this motion has received the nod to this motion largely by the business community and the population for a REASON beyond the bilge you are trying to peddle on this website here today.

    Perhaps if you had attended the meeting last night and asked _Ellio_ your questions directly, you might have been a little more informed here today. But being informed isn’t really your objective here is it?

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  3. AJ

    It is my perogative to voice my opinion Elio is a legislator. Like yourself and many others, I exercise my right to agree or not agree, or even to agree to disagree; and perhaps you may want to look into your own rights and privileges. You will find that you’ll be kept quite busy.
    Unlike others who jump on every band wagon it always makes good sense when a high pitched salesman tries to sell something at high s peed; One should find a reason ‘NOT TO BUY its just a precaution of an astute concerned buyer.As for the spelling, I’m a very good speller, I’m quite busy and believe it or not I type about 180 WPM or more and am more interested in getting the message out than the spelling. Everyone knows I can spell. I think your issue with me runs deeper than the member for George Town or my comments. Are you certain that You’re not the disgruntled UDP supporter or someone having some other hidden agenda. I think I’m onto something here.
    Both of us have rights to an opinion on the subject, so why question mine.

    There’s nothing negative or bashing about this, its just my precaution and the member for George Town is a member of my Legislator, Is he your legislator too? As far as me belonging in other forums, I think that question should come from Caycompass as they are the trained professionals with the ability to deliver a more seasoned response to the contributors in these forums.We are well aware that certain bloggers have a great disdain for those who speak their mind and for others who are afraid to let their voices be heard. I’d like to inform you here and now that
    I’m NOT ONE OF THEM so relax.
    It’s time for people to respect discontinue objecting to Caymanians who have a right to speak out without the permission or consent of those who seem to think they are the authority to distribute the right to our people to speak out on issues and the right to distribute the air that we breathe.
    Its time to know ones place and govern oneself accordingly.

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  4. AJ,
    Calm down. You have missed something here.
    Why be so mean and nasty it’s uncalled for. Tiger usually make comments that put voters on guard and always makes a lot of sense to those concerned.It maybe that you are not one of the concerned! One Chief Editor described Tiger as a very thought provoking writer. Tiger’s articles will cause a riot or a revival and I believe it is not intended to do so. Tiger makes people think and that’s what Cayman needs . I mean, people who make direct comments not beating around the bush and is always looking out for the good of the people, are always hated by those who do not mean our people well, anything goes regadless of who gets hurt in the end.
    People hate Mr. Ezzard Miller because he is always looking out for Caymanians, that’s what he was elected for. That is a fact.We have others who do the same even if they are not legislators like Mr. Miller.
    I sense some misunderstanding on your part, mixed with a rage of temper and unwarranted hatred coming from you AJ for people in our society that are only concerned about the very best for our people.You need to watch your temper. It’s not true when you accuse Tiger of unceasing hatred for the George Town member, Tiger is above that. There has never been any hatred shown towards the member. As a matter of fact most of Tiger’s comments focuses on responsible leadership much higher than Elio so I believe you hit and missed this time.
    My interpretation of the article on the pension fund written by Tiger is that this is not hatred for Elio, as a matter of fact this is the first time this year I read anything about Elio by this writer. You are out of control and being over sensitive. Calm down and read the message again. Thank God there are people out there who look at the future and not just on their nose. I hope this is of some help to you.

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  5. No worries…the Cayman Island National Pension Office does NOT enforce the requirements of their own laws anyway…figure out what works for you financially…take advantage of the system…and make the most of it!!! Between the politics and their own incompetence…you’ll be able to take advantage of this bad economy…and come out ahead!!!

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  6. So you can go to prison for failing to pay back the proceeds of a property that you might have managed to make a profit on to your pension investment service provider whose track records are dismal to say the least!
    Never mind chimpanzees typing a Shakespearean play, I am sure they could have achieved a better performance record than our so called pension managers. My own pension fund is currently worth considerably less than the total contributions made over more than a decade which is an absolute disgrace

    I perhaps naively thought that someone’s pension was a benefit that they had contributed to so how can you go to jail for spending part of it for your own benefit. What crime has been committed? Perhaps the sentencing provisions should be enforced for those employers who fail to pass over their employees contributions rather than jailing the supposedly protected by hapless employees.

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  7. Rockman,

    At least you have enough intelligence to understand
    tiger’s message on the danger of this bill passed all too quickly. Ezzrard is right on the money as well in objecting.
    What people don’t realize is that these are senior pros who know how government should work, whether they are just dangling money over their heads and making promises that will have a boomerang effect later down the road.

    Maybe you can talk some sense into AJ?

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  8. I must say, as a young Caymanian, that currently owns property, this is a very good idea for the young people out there. I am 29 years old and have been working for 11 years and my fund is currently at US 36K . My pension fund has just started to recover from some serious losses and I mean 3K to 4K a quarter at the hands of Silver Thatch.

    For someone under 40 years old this is makes more sense as long as you go about it wisely, ie dont take the maximum amount allowed. For example if you are allowed 35K, take only 15K-20K and put cash on the rest of the deposit and/or pay more than the 1% back. In about 10-15 years time, you will have paid back the withdrawl and now have a property with equity in it to sell or keep if you desire.

    To me, this would be a better investment than possibly letting some pension fund lose the 15K-20k over the 10-15 years and at the end of the day still not owning your own house.

    I will say this also, while I do have opinions about the political happenings in this country, I have never voted and dont ever plan to. I do not have any political affiliations.

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  9. And as for the liabilty in case of the withdrawer drops dead, is seriously ill or is somehow unable to pay back the amount withdrawn from their pension, they will have bigger problems that the pension repayment, namely their mortgage payment, which I believe would be alot more than their pension repayment amount.

    The bank would repossess and sell the property and the pension withdrawal could be repayed then after all the deposit is almost instant equity (not really in this case until you have repaid the withdrawal but you see my point).

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  10. There’s no forum for this question but could someone please help us out. Ezzard and Alden please give us your response in this forum.

    Would you both explain to the Caymanian people why was Premier McKeeva Bush talking to the FCO in the US?, it can’t be good and we the public needs to know. Why is the opposition not answering this question. Who was he trying to put the screws on there at the FCO? The FCO deals with telecommunications, Internet, websites, etc.
    This man is woking over time because the Bill of Rights is right around the corner and he will not be able to behave like this, that’s why he’s so scared of the Bill of Rghts.

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