The Cayman Islands could face an exodus of up to 2,500 foreign workers before the end of 2017 as a result of changes to the Pensions Law that prevent expats from cashing out their retirement savings when they leave the country, business leaders have warned.
The law is particularly affecting workers from developing countries, many of whom had counted on receiving the cash windfall when they leave the island.
The Chamber of Commerce estimates the change will lead to mass resignations and has warned that government must be ready to process an unprecedented number of new work permit requests later this year.
Wil Pineau, CEO of the Chamber, said it was a “credible estimate,” based on discussions with Chamber members, that somewhere between 2,000 and 2,500 foreign workers could leave the islands before the pensions deadline.
The hotel, restaurant, security and service industries are likely to be most affected.
Under the previous law, for savings accounts of $5,000 or more, employees were entitled to access their money once they had been out of Cayman for at least six months and had not been contributing to the pension plan for at least two years.
Effective Dec. 31, 2019, payouts will be available only at retirement age, meaning anyone who wants early access to their retirement savings will have to quit at least two years before that date – by the end of this year.
Mr. Pineau said Chamber members were expecting to see large scale resignations. He said many lower income workers were relying on being able to cash out their pension when they left the island to invest in property or businesses in their home countries, as part of their long-term savings plan.
He said businesses would be looking to hire Caymanian first, but warned government would have to be prepared for an influx of permit applications.
He said the Chamber had flagged the issue in the hope that the new administration would consider the implications of the changes.
Ken Hydes, president of the Cayman Islands Tourism Association, said the industry could lose some of its most talented and experienced staff, who would have amassed larger savings over years of employment.
“We are going to lose some of the brightest and best in the industry. Some of our properties are talking about the prospect of 75 or more people leaving at the same time.”
Combined with the usual seasonal turnover in the tourism industry, he said, businesses would face serious staffing challenges.
He added that more thought needed to be given to the unique requirements of the tourism industry.
“There is a lack of understanding in the community and in the legislative branch as laws are drafted, of the uniqueness of our industry,” he said. “This is a globally competitive industry and we are trying to maintain an enviable position within the Caribbean.”
Marc Langevin, manager of The Ritz-Carlton, Grand Cayman, said the hotel had already seen workers resign as a result of the change. He anticipates The Ritz-Carlton could lose up to 10 percent of its staff when the season winds down in September.
“If everybody else is in the same position, around that margin of 5-10 percent, that is going to mean thousands of people leaving at the same time.
“Everyone is going to leave in September and those work permits are going to have to be processed in time for the high season or it is going to have a major impact on the economy.
“How ready is the administration to handle that?”
Mr. Langevin said the industry had been concerned about the likely impact of the pensions change for some time.
He said he was grateful that government had delayed implementation to allow businesses time to adjust.
“We have communicated with staff and it will be a personal decision for them.”
He said some workers had attempted to maximize their savings by contributing more than the minimum amount required to their pension funds to create a “nest egg” that they could use to invest when they returned home.
“Some of our employees don’t really trust the banking system in their home countries. They were relying on that money to build a house or start a business, so for them, this is a game changer.”
The change is not just effecting the tourism industry.
Keith Jernigan, country manager for The Security Centre, one of the largest employers in the Cayman Islands, said “We heard that the issue is being discussed informally, which we are keeping a pulse on. Pension amounts of $5,000 or so is a lot of money to a large number of our employees, including our guards.”
The potential for the changes to the Pensions Law to affect vast numbers of employees was flagged by Valerie Hoppe, human resources director for the Grand Cayman Marriott Beach Resort, at a meeting of CITA members late last year.
“One of the problems that [the amended pensions law] will cause is skyrocketing turnover,” she told members.
“So get prepared, employees will be resigning to take those funds with them,” Ms. Hoppe said.
Tourism Minister Moses Kirkconnell told the Cayman Compass this week that government is closely monitoring the issue.
He said the potential impact on staffing in the tourism industry had been flagged by CITA during the consultation period for the new Pensions Law. As a result of those discussions the deadline for implementation of that aspect of the law was delayed to allow businesses and their staff time to prepare.
He said his ministry would continue to facilitate an open dialogue between tourism industry leaders and the Department of Labour and Pensions to ensure the tourism industry was not adversely affected.
The changes to the National Pensions Law do not prevent retirement savings funds from being transferred from the Cayman Islands to an analogous retirement plan outside the country after December 2017. The new law restricts workers’ from getting a cash refund of their pension before retirement, unless their account holds less than $5,000.
“We routinely deal with overseas transfers,” said Pensions Superintendent Amy Wolliston at the same meeting with CITA members. “The U.S., Canada, the U.K … they all have established plans that we have transferred to in the past.”
She said if workers were concerned about the banking system in their own countries they could leave their savings in the Cayman account and arrangements could be made upon retirement to withdraw funds directly from here.