A plan that allows Caymanians to spend as much as $35,000 in pension savings to purchase a home or land has placed nearly 100 families in new dwellings since November of last year.
According to figures provided by George Town Member of the Legislative Assembly Ellio Solomon, some 137 people who work in private sector jobs have been allowed to utilise a portion of their pension savings either to buy a primary dwelling place, pay off an existing mortgage or to buy land since the beginning of the pension-for-property swap plan.
Mr. Solomon said 137 of the 143 applications for the swap plan have been approved since November. Of those successful applications, 78 withdrawals from pension accounts have been used to purchase a home; 36 withdrawals have been used to pay off existing mortgages; 17 withdrawals have gone toward the construction of a new home and six withdrawals have been used to buy land.
Six applications for the pension withdrawals were rejected.
“I think it has been a success,” Mr. Solomon said. “We just need a bit more clarity on when and how people can use this programme.”
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 member’s motion to the Legislative Assembly in February 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.
Mr. Solomon said Saturday that he knew of no reason a private members motion on this issue shouldn’t be brought before the assembly for a vote.
“I want it to be a mirror of what you’re getting now in the private sector,” he said. “I hoping that whenever the next opportunity is for private members motions to be dealt with, this will be one.”
Neither the Cayman Islands Civil Service Association nor the deputy governor, who directs the civil service with delegated authority from the governor, have publicly commented on the pension swap plan’s potential application to civil service retirement funds.
However, the government has become concerned in recent years regarding the overall financial health of those funds, particularly as it relates to older, long-time civil servants who will receive a monthly pension under the defined benefit portion of the pension plan.
A report that was withheld from public release for more than three years revealed in May that both the Cayman Islands government workers’ main pension plan and the parliamentarians pension plan were “severely underfunded” and that the problem was likely to grow within the next decade.
“Pension amounts are expected to grow very rapidly over the next 20 years as the majority of the DB [defined benefit retirement plan] participants approach retirement ages,” the report, completed by pension board actuary Subramanian Sundaresan. Mr. Solomon said the financial health argument was used as a reason against allowing withdrawals from the private sector retirement plans when he first proposed the pension for property swap.
“There was going to be a run on the pensions fund, we haven’t seen that,” he said. “It’s a healthy number [of private sector pension withdrawals], but you’re not going to get a run on the bank.
“There’s no doubt that there’s challenges in what’s happening right now in our economy. But they’re dragging in things like past service [pension] liability into the debate … I don’t think that carries 100 per cent relevance in this argument.”
One thing that hasn’t always been understood about the pension for property swap is that participants can’t just use withdrawals from the pension fund for anything, Mr. Solomon said.
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.