A raft of changes to Cayman’s private sector pension laws are being proposed with the goal of making local workers better prepared for their retirement and local companies less able to avoid paying into various retirement schemes.
The amendments to the National Pensions Law will not come before lawmakers immediately. The Ministry of Employment is putting the changes out for a 60-day public comment period, which will include public meetings on the subject.
The changes to the National Pensions Law are being made in conjunction with other legal amendments to the Labour Law, which is increasing the territory’s retirement age to 65, and the Trade and Business Licensing Law, which will soon start requiring private sector companies to comply with the local pension regime before they receive operating licenses and any work permit approvals.
However, Employment Minister Tara Rivers said Monday that the main goal is to ensure Cayman’s workers have enough savings to retire comfortably.
“We expect to improve the income replacement ratio … at retirement for all employees,” Ms. Rivers said. The bill only affects private sector retirement plans, not the pension plan for civil servants, which is governed under separate legislation.
The bill as currently drafted would put the earliest available retirement age at 55, up from the current 50. The full retirement age for private sector workers will be pushed to 65 from the current 60. Ms. Rivers said this will mean Caymanians who do choose to work longer will contribute to their retirement funds for longer periods. [*editor’s note]
In addition, the bill seeks to increase the current maximum pensionable annual earnings from $60,000 per year to $87,000 per year. What that means is employees must pay 5 percent of their salaries up to a maximum of $87,000 per year and employers must pay a matching 5 percent contribution.
So workers making $80,000 per year who were previously putting $6,000 a year into their Cayman Islands retirement plans would pay $8,000 per year into the plans, if the new pensions bill becomes law.
The amended National Pensions Bill does not propose increasing the 5 percent basic contribution from either the worker or employer, but Minister Rivers said those can be voluntarily increased by either party.
With the increases to the pensionable age and the pensionable earnings, the ministry estimated that workers will be able to receive between 57 and 78 percent of their pre-retirement income under the private sector pension schemes if they paid into them for their entire career.
The bill also seeks to eliminate pension payment requirements for employees who work less than 15 hours per week. Right now, all private sector workers – apart from family-employed domestics – must be paid a pension regardless of their hours.
The National Pensions (Amendment) Bill changes a number of current requirements within the law for local employers.
For instance, employers are now required to begin paying into a retirement plan for Caymanians and permanent residents immediately, but for work permit holders, a retirement savings account does not begin until nine months after they start a job.
The new bill allows for a six-month delay on pension contributions for both Caymanian and non-Caymanian workers. Minister Rivers said the reason for the change was that government did not want to disadvantage Caymanians in the initial hiring process.
The bill also extends the time private sector workers must wait before receiving their pension payments in cash if they leave the islands. Currently, private sector workers can receive the full amount of their pension cash within six months of leaving the islands, as long as they have not paid into a pension plan for two years beforehand.
The new bill seeks to increase that period to three years, if the person wants to receive the pension savings amount in cash. The three-year period does not apply to individuals who have already reached retirement age, or who have less than $5,000 in their pension accounts.
Other legal changes require private sector pension plans to hold annual meetings, file annual audited financial statements with the Department of Labour and Pensions and provide quarterly benefits summaries to plan participants.
Many of the plans take these steps already, but Labour and Pensions Department Director Mario Ebanks said this move will standardize requirements for those who fail to play by the rules.
Investment funds must, under the proposed legislation, file statements of investment policies and employers must keep records regarding the pension deductions and contributions of all workers, Mr. Ebanks said.
Administrative fines for non-compliance will be increased in the new legislation, which sets fixed fines for certain pension offenses. Companies may still challenge fines in the Grand Court. The timeline for pursuing criminal or administrative offenses under the National Pensions Law are proposed to be extended from five years to seven years from the time the alleged offense is reported to the director of labor and pensions.
[*] Editors note: Story was changed from the original version to clarify government’s statement.