Pension ‘refunds’ restricted by new law

Retirement age, fund contributions increased

Greater restrictions will be placed on the transfer of pension funds out of the Cayman Islands, particularly when those transfers involve lump sum “refunds” to individuals who have left the islands, according to legislative changes approved this week.

The amendments to the National Pensions Law, which have altered more than 50 sections of the legislation, were approved by a majority of Cayman Islands lawmakers late Wednesday.

The amendments represent the first complete overhaul of the legislation since it came into effect 18 years ago.

The National Pensions Law governs the operation of private sector workers’ retirement funds in the islands. A separate law governs regulations surrounding the three public sector retirement funds.

According to the legislation, which still requires a third reading and assent by the governor, the ability to obtain a lump sum refund from the individual’s pension fund would be removed, regardless of that person’s immigration status.

The removal of the refund provision does not mean an individual would be prevented from transferring the money into a retirement savings account overseas. However, it would prevent the person from receiving a lump sum in an immediately accessible bank account.

Also, the amended law will also require a longer time before the money can be transferred into an overseas retirement savings account.

Employment Minister Tara Rivers said Wednesday that the enactment of the new pensions legislation will not lead to an immediate halt on pension refunds. Rather, it sets an order – with a date to be determined by Cabinet – when pension refunds would no longer be available. Then, pension refunds would be available only under two specific circumstances.

The first instance would be when an employee has left the islands and their pension earnings total less than $5,000. In that case, Ms. Rivers said, it would be left to the pension plan administrator’s discretion as to whether the employee can receive a refund.

In the second instance, if a person who has left the islands is already at the age of pension entitlement – 65 under the new legislation – and due to age, cannot transfer the money into a retirement savings account, a refund would be provided.

Minister Rivers said the National Pensions Law “concept” that allowed the lump sum refund to pensioners who have left the islands seems to be “a bit of an anomaly” internationally.

“The pension process is a forced savings for retirement,” she said. “Pensions shouldn’t be seen as some lump sum windfall to begin with.”

Ms. Rivers referenced situations in the past when a worker stopped making contributions to the pension system for at least two years and left the islands for six months, then opted to receive a refund from their pension account and later returned to the Cayman Islands to start “at square one” with their retirement savings again.

Ms. Rivers said the bill has changed other rules to try and prevent this situation. The new legislation requires any person who wants to transfer the Cayman pension savings into an analogous retirement account overseas to be absent from Cayman for two years. Under the current bill, the period of absence is only six months. The person will also have to have stopped contributing to the pension plan for at least two years prior to the transfer, but that requirement exists in the current law.

Retirement age

The new National Pensions Law sets Cayman’s “normal” private sector retirement age at 65, up from 60. It also requires higher earners to put more into their retirement savings each year.

Age 65 is referred to as “the normal age of pension entitlement” in the legislation – in other words, the age at which Cayman Islands workers can collect their retirement earnings. It is not a mandatory retirement age, and should not be treated as such, Ms. Rivers noted.

“[Forced retirement] is not the intent of the law,” the employment minister said.

The legislation increases a worker’s maximum annual pensionable earnings from $60,000 per year to $87,000 per year. This means the employee and their employer must contribute a mandatory 5 percent of the employee’s salary to the retirement fund, up to $87,000 a year. Previously, if someone earned more than $60,000 in a year, employers would pay their 5 percent of the pension contribution directly into a worker’s salary.

Ms. Rivers said the retirement age changes in the law, as well as the increase in pensionable earnings, should serve to boost Cayman’s “income replacement” for retirees via their pensions to an acceptable international standard.

North Side MLA Ezzard Miller wondered how that could be, given that maximum withdrawals from a defined contribution retirement fund each year is $12,000. He suggested that $1,000 a month would not serve as “income replacement” for someone earning $6,000 to $8,000 a month prior to retirement. Despite the major and numerous legal changes, Ms. Rivers noted that more changes may be needed in Cayman’s retirement savings plans.

“I am under no illusions, it is not the end of the road,” she said. “We are a lot further down the road than when we first started.”

“You’re going down the wrong road,” Mr. Miller retorted. “This bill … is really nothing more than fancy window dressing. [It] will not, in any way whatsoever, improve the chances of a poor person … in this country ever earning a pension under the pensions law.”

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  1. This is very interesting. As I understand this new law someone can come here while in their 20s on a work permit. A compulsory deduction is taken from their salary to provide for their eventual pension some 40 years later.

    However as a matter of law there is no way they will still be living here even 10 years later as a result of the rollover policy.

    This means they will either have to remember 40 years later that they are owed a pension here.
    Or they will have to transfer it to some overseas pension plan. Which may or may not be easy to accomplish.

    I agree that this money should be used towards a pension and not just treated as a forced savings plan.

    But since they are being forced to leave by operation of law it should in fairness be made simple for them to transfer their pension funds

  2. Perhaps the Cayman Compass can shed some light into how can the the people legally challenge this in court.
    Foreigners have no security of tenure when it comes to the ROLLOVER policy, as a matter of fact, it is most likely they do not will not qualify for PR.
    This to me a clear violation of human rights, this only benefit the financial institutions and the government which also have to pay their mandatory pension to the expats working for the various departments.

    Cayman compass, can you investigate and give us “the people” a possible solution to challenge this in court.
    Can the Law Society, Human Rights Commission, Chamber of Commerce and other associations speak out on this matter?

  3. “…would be left to the pension plan administrator’s discretion as to whether the employee can receive a refund.” Hah! You know what happens when something is left to the administrator’s discretion – plenty of examples.
    ..pension some 40 years later? Who knows what will be left of the Cayman Island, let alone The Pension Fund in 40 years.
    Don’t forget The Dormant Accounts Law 2010 – it requires to transfer monies that are in dormant accounts to the Government after just SEVEN (!!!!) years of account inactivity. How one can guarantee that expat’s pension funds won’t end up being appropriated down the road when this Government find itself in financial crisis?
    If what they want to do is legal (I am talking about expats here), and I suspect it might be not, Grandfather clause must apply – old rule continues to apply to the existing situations while a new rule will apply to all future cases.

  4. I cannot believe this. Cayman is a beautiful place to live, but it is not easy. The high cost of living, expat sniping, rollover policy, work permit restrictions and admin. Don’t get me started on how long it takes to gather up all of the information to apply for PR only to sit and wait in limbo for years. This could be the final straw for a lot of expats, including me. Why does the government care about people who leave the islands never to return? They will never become a burden on the wider Cayman society. I have spent some very productive years of my life working here, training my colleagues and generating new business. I think that I am responsible enough to manage my own retirement. Very few people can afford to retire here anyway. Minister Rivers, this policy on keeping expat pension money until age 65 could be the final push for more of us to leave. We can’t vote at the ballot box, but we can vote with our feet. I hope that the governor will send this bill back to be redrafted instead of accepting this wholesale re-write of a law. Was there any consultation? The government needs to focus on helping Caymanians reach their retirement goals. Don’t worry about the rest of us!

    • Why does the government care about people who leave the islands never to return? you ask.
      They care about THEIR money, not people. There is a good chance that in 20-40 years money will end up in their pockets. With a history of poor electronic records keeping when systems just crash and never restored chances are one might spend years trying to get his/her pension funds.
      Don’t forget about Robert William Schultz, a US national who admitted he stole US$289,660.12 from the Cayman Islands Chamber of Commerce pension fund over a two year period. For over 2 years (!!!) the pension fund had no clue that money were being stolen. This speaks volumes about management and safeguarding of pension funds.