‘We were not consulted’

McKeeva Bush Rolston Anglin Cayman Islands main

The Cayman Islands’ two largest nonprofit private sector employee pension plans said Friday that the potential elimination of work permit holders’ contributions to those funds could have wide-ranging impacts that will affect the retirement savings of Caymanians for both the short and long term.  

“Immediately most, if not all plans, would regress from growing through contributions, to shrinking, as monthly contributions suffer a substantial reductions due to the shut off of expatriate contributions,” according to a statement issued on behalf of Silver Thatch Pensions board deputy chairman 
Charles Farrington.  

Moreover, the uncertainty of whether work permit holders’ current contributions could be withdrawn from the investment funds, if they are no longer required to participate, is causing the pension plans some consternation.  

“Clearly, our members’ assets and the plans assets’ would drop [if that occurred],” read a statement from the Chamber of Commerce pension plan board of trustees.  

Cayman Islands Premier McKeeva Bush said Wednesday that businesses who are currently required to contribute 10 per cent of an employee’s salary [5 percent from the employee, 5 per cent matching contribution from the employer] to a retirement plan would no longer be forced to do so. Businesses that wished to keep making those contributions on behalf of employees on work permits could do so and the employees themselves could also continue to make contributions if they choose.  

“The proposal to remove private sector contributions to pensions is … a real reduction in the cost of doing business in the Cayman Islands,” Mr. Bush said last week.  

Caymanians, non-Caymanian permanent residents and non-Caymanian government contract workers would still be required to pay into a retirement plan.  

“We do believe there will still be sustainable pension plans,” said Education Minister Rolston Anglin earlier this month when asked about the issue during a public meeting. “There may not be as many pension plan providers, but we believe there will be a sustainable base.”  

 

Costs increase  

Both Silver Thatch and chamber officials said the potential removal of expatriate employee contributions from those funds would lead to higher costs for plan administrators and lower returns for workers investing for retirement.  

Mr. Farrington’s statement indicated that expatriate workers who have left the Cayman Islands would likely continue to make withdrawals from the funds as normal, while at the same time fewer contributions would come in each month. 

“All of this would translate into much higher per unit costs for the plans – that is – lower returns for the members,” the Silver Thatch statement read. “At some point the plans would presumably return to growth again but it could be many years.”  

Chamber pension plan officials also noted that their retirement savings accounts are not now required to keep track of which plan members are making contributions and which are not, because everyone is required to do so.  

“Changes in immigration status of work permit holders would now need to be followed and maintained as a change may trigger the requirement to contribute, adding to the administrative requirement,” the chamber statement read.  

 

Early withdrawal  

Another key question that remains with regard to the expatriate worker contributions becoming voluntary is whether those workers, now relieved of their obligations to pay into a retirement plan, can withdraw money they have already saved in the private sector pension accounts.  

An expatriate worker asked a question about the issue during a 1 August public meeting in West Bay, stating that some work permit holders might prefer to withdraw whatever is in their pension account and invest it somewhere else if their employer no longer wishes to make a matching contribution to the fund.  

“That is certainly a comment that we’ll take under consideration,” Mr. Anglin said in response.  

The chamber pension plan hopes government will ultimately require previous contributions made by expatriate workers to stay within the funds until they either have left the Cayman Islands for two years or have retired.  

“Unless the government is saying work permit holders will never have the right to retire here, why would they allow or encourage those employees to liquidate their pension savings?” a chamber statement on the matter read. “If it made sense to encourage saving for retirement yesterday, it should still make sense tomorrow.”  

Silver Thatch officials had no idea about any specifics for work permit holders’ being able to withdraw their pension funds early “if and when” they are exempted from the pension law.  

“Pension plan providers had not been consulted by government prior to the budget proposal,” the Silver Thatch statement read. 

McKeeva Bush Rolston Anglin Cayman Islands V

Cayman Islands Premier McKeeva Bush, left, and Cabinet Minister Rolston Anglin talk things over. – Photo: Brent Fuller

1 COMMENT

  1. For those who don’t have a choice but to contribute, it would mean the funds going in would have to cover all costs involved – with less contributors, pensions would be eaten into by pension management fees. This could mean that pensions might not match inflation in growth.

  2. the uncertainty of whether work permit holders’ current contributions could be withdrawn from the investment funds -this was the very first thought that came to my mind when Payroll tax was proposed. Not only that, but who is going to fund current distributions if expats stop contributing?

  3. LB, Dont fret. The article is written in a confusing manner. If expats withdraw all of their money from the pension fund it will not have any impact whatsoever on the plans’ ability to fund distributions.

    Both Silver Thatch and the Chamber plans are Defined Contribution plans rather than Defined benefit plans. What this means is that everybody’s distribution is based on the money they pay in and the investment returns made.

    If all expats removed their money tomorrow it would not affect the value of the local peoples holdings at all. However the lower total assets would have a slightly higher expense load as the fixed portion of the administration costs would have to be borne by fewer investors.

  4. conversely it would actually be a great way of stimulating the economy. Imagine if say 75% (and I would have thought this number is realistic) of expats withdrew their pensions and spent this cash on cars, property, restaurants, Cayman Airways etc…that is alot of money hitting the economy and would be a great, albeit temporary boost, which would no doubt reflect well in the short term for the politicians, and politicians only care about the short term! Not only this but alot of this money would end up back in the governments purse helping this deficit and could then be sqandered by the government too!

  5. Voice of reason:
    If expats withdraw all of their money from the pension fund it will not have any impact whatsoever on the plans’ ability to fund distributions-this is just pure speculation. Show us numbers behind your statement.
    How do you comment on a recent (2012)news:
    Trustees of the Chamber Pension Plan confirm they are changing the custodian of its plan after one of its employees is charged with theft, Robert William Shultz is accused of stealing nearly 300,000 over a 3-year span.

  6. LB, The numbers behind the statement are different for everybody but shown to them each quarter on their statements. Their NAV wont change due to an exodus of expat money. The number of shares they own also wont change so thus their investment will stay the same.

    If this was a defined benefit plan such as the government plan then it would be a far different story. With an underfunded plan like that contributions from those paying in today are used to pay the benefits of retired members. Again that is not the case with the silver thatch or chamber plan.

    As to the money that was stolen. It will depend on the chances of recovery. If it is unlikely that funds will be returned then the plans assets will have been adjusted down. Everybody will have shared equally in the loss and would have seen the value of their holdings fall accordingly. (the loss of 294k on the 222 million portfolio would mean that for every 10,000 an investor had in the plan they would have been assessed a whopping 1.32)

    Maybe the authorities will get some of the money back or maybe the auditors will be forced to pay up out of their professional liability policy for not catching the fraud over the 4 years it occured. Mu guess is that because it is a relatively small amount of money it would be too costly for the members to try to get it back. Rather than have some lawyer get richer it is probably best to leave it be and make sure it doesnt happen again

  7. Sorry bad math. For every 1,000 of assets each member would have to fork out 1.32 to cover the theft. Not insignificant for sure but most should be able to absorb it.

  8. I think it is a huge mistake to eliminate the mandatory pension contributions; besides, just the thought of having another 1000 persons getting residency and retiring without contributions to pensions where we would have to pay extra to maintain them. Think of the cost and burden to society that would cause. Pension is here for a reason.

    Most people would love to keep their own monies and plan for their own retirement savings, but who will commit to do that? You are going to have many people spending their savings before they reach 50 years old. Hence, to mandetory pension is like a security in place to ensure the next generation is not burden with having to take care of you.

    This is no doubt a decision that will COST us!

  9. I am not talking about NAV here.
    If all expats leaving the island will have their contributions withdrawn (it will only take 2 years) and no new contributions will be coming from new expats, and the market takes another dive, who will be funding the governmental pensions? A wise person would not want that to happen. Expats’s contributions secure future distributions.

  10. LB, The government plan is a completely different animal. If expats leave the private sector plans then the locals still in them will be fine, although with a slightly higher administration cost.

    I am not sure how the Government plan is currently funded but I would be surprised if they were taking contibutions from expat civil servants. If they were it was governments money anyway as it was part of what they were paying them. Government will still have to fund the plan to keep it solvent.

    The Government plan is as I understand it already grossly underfunded. Assuming a modest rate of investment return the current assets cannot meet the projected future payout needs. This means that people contributing today may not see their money back unless government finds a way to top the plan back up from the public purse. What is happening is that contributions made from young people today are going to be used to fund older people’s retirement. They will then have to wait for the next generation to fund them. Just like US social security and essentially a ponzi scheme.

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