Since early November, some 53 Caymanian families have been approved to participate in a new government programme allowing them to trade a portion of their retirement savings to buy a home or land.
Those figures were provided to the Caymanian Compass by George Town MLA Ellio Solomon, who also noted three applications to utilise pension savings to either purchase their primary dwelling, purchase land or to pay off an existing mortgage were denied during the period.
Mr. Solomon, who championed the proposal in the Legislative Assembly, said last week he thinks the pension-for-property swap idea is helping get more Caymanians into homes.
“Considering the staunch opposition I received to it, I believe that it is working,” Mr. Solomon said. “Remember, it’s not just one individual, but one family is benefitting [from the programme] every day.”
Mr. Solomon said he was not given precise figures by the National Pensions Office, which is responsible for getting a quarterly report on the pension withdrawals from retirement savings plan providers. He could not state how many withdrawals were made for the purchase of a home, versus home many were made to buy land or to pay off a mortgage.
Caymanians employed in the private sector may now withdraw as much as $35,000 from their retirement plans for such a purchase. Non-Caymanians and Caymanian civil servants who are participants in the Public Service Pensions fund plans cannot participate in the swap.
However, Mr. Solomon said he hopes to change that. The George Town MLA brought a private members motion to the Legislative Assembly Monday asking the government to consider making civil servants eligible for the pension-for-property swap. Workers in Cayman’s government service have their own retirement savings plan that operates separately from any of the other private sector pension plans.
“I have met with the Civil Service Association and I intend to move forward,” he said.
The Legislative Assembly was due to meet Monday (today), but its meeting was postponed for unknown reasons.
With regard to non-Caymanian participation in the programme, Mr. Solomon said he would look at adding individuals who are married to Caymanians to the pension-for-property swap scheme. He said nothing about allowing expatriate workers to withdraw funds for similar purposes. Typically, expatriates who leave the Cayman Islands after their contracts expire or who are term limited by legal residency requirements take their pension savings back to their home countries when they leave.
No ‘free money’
Cash withdrawn from a retirement plan is not exactly free and clear under legislation approved by government last year.
Home buyers who 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 amended National Pensions Law: “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.