The two-year voluntary suspension of non-Caymanian workers’ pension payments will come to an end this month and at this point it appears the government will not continue the programme.
“There certainly haven’t been any further discussions to extend that at this stage,” Employment Minister Rolston Anglin said.
Some of the private sector pension plans notified Cayman Islands companies that the holiday period would end on 26 April and stated that companies and workers would have to resume paying normal contributions to the retirement plans. Under the Cayman Islands National Pensions Law, the company and its employees are required to make contributions to a retirement scheme that, when combined, equal 10 per cent of an employee’s earnings up to a $60,000 per year maximum salary.
The suspension period allowed both Caymanian and non-Caymanian workers to forego their 5 per cent pension contribution and choose instead to take that into their regular salary. Companies similarly were allowed to keep its 5 per cent matching contribution if the workers agreed voluntarily to participate in the “holiday”.
For Caymanians, the optional pension suspension period ended last April, but non-Caymanians were allowed to continue for an additional year.
In April 2011, Mr. Anglin said total participation in the suspension period included 1,027 Caymanians and 1,607 non-Caymanian workers. According to recent census figures, that’s less than 8 per cent of the total Cayman Islands’ workforce.
“I’m not surprised that a lot of Caymanians did not take it up,” Mr. Anglin said in 2011. “They are making long-term plans as opposed to expatriate workers who may only stay here for seven years.”
Last week, Minister Anglin said he was not sure if any additional non-Caymanian workers had signed up for the pension suspension plan between April 2011 and now.
“But certainly, from the early days it looks like people took advantage in trying times,” he said. “It had its benefits to the local industries concerned.”
Some pension plan providers were not best pleased about the two-year break in contributions, which they warned could hurt the long-term health of retirement investments.
Illustrating that one or two years of not contributing can have a significant impact on the final pension pay-out for individual savers, Brian Williams, the CEO of Saxon Administration, presented several scenarios during a Silver Thatch Pension Plan meeting.
Assuming a $50,000 annual salary, a salary increase of 4 per cent per year and a retirement age of 65, Mr. Williams estimated losses from $23,000 to $85,000 for a currently 45-year-old to losses ranging from $80,000 to $697,000 for a 25-year-old, depending on the future investment performance of the pension plan.
The impact on Cayman’s economy, in terms of lower spending during retirement, would be corresponding, he said.
The overall health of pension plans was one of the reasons government decided to sunset the suspension or “holiday” period, Mr. Anglin said. “It always has to be balanced … to ensure that we don’t compromise the long-term pensions,” he said.