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Moreover, the uncertainty of whether work permit holders’ current contributions could be withdrawn from the investment funds, if they are no longer required to participate, is causing the pension plans some consternation.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