EDITORIAL – Pension ‘exodus’: Bad idea, worse execution

We imagine that Moses’ leading the Israelites out of Egypt was a more orderly affair than Cayman’s “pension exodus” – where hundreds of expatriate workers are packing their bags and leaving, so as to avoid being swept up in last year’s changes to the National Pensions Law.

Operating according to motivations that have never been fully explained (which makes us very nervous), the Legislative Assembly decreed that foreign workers employed by private businesses will no longer be allowed to “cash out” mandatory pension funds after they leave the islands. Any worker who wants control of his or her savings must cease their employment before the end of the year … or, perhaps, the end of the month … maybe.

There are many things wrong with this government-created situation, on multiple levels.

The government’s scheme of forcing private sector workers to “set aside” 5 percent of their income (and forcing employers to match those savings, dollar for dollar) is fundamentally flawed. It doesn’t take an actuary to understand that saving 10 percent of one’s income falls far, far short of a viable retirement plan.

Here’s some simple math: Say you work for 40 years, diligently socking aside 10 percent of your income. At the end of your career, that translates to four years’ worth of income. How many “golden years” do you plan on living, after you retire?

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The numbers are further from adding up when you consider the cases of expatriates who are in Cayman for only seven or eight years.

It makes even less sense when one considers the situations of most of our expatriate workers. Under the new rules, employees must keep their pension money in Cayman until they reach retirement age, or else transfer those funds into a similar retirement savings account in another country. That is simple enough for British, American, Canadian and European workers.

But what about workers from Jamaica or the Philippines, the home countries of more than half of Cayman’s foreign workforce? There, only about 30 percent of the adult population even has a formal savings account, according to the World Bank Global Findex.

Over the years, a reasonable workaround was developed for Cayman’s expatriates – treating those pensions plans as “long-term savings accounts” they could tap into a couple of years after leaving the island. Much of the time, that pensions cash was then used to invest in a home or income-producing ventures such as small businesses.

But now, (like they have done with immigration) Cayman’s government has changed the rules of the pensions game for expatriates. That has spurred hundreds of people to make potentially life-changing personal decisions, which in turn has affected businesses who must scramble to fill unexpected vacancies, en masse.

And now, as a final insult to injury (or finger in the eye, or kick in the rear), it seems government has not been able to get its story straight on what the rules are, exactly, for these departing workers to access their pension funds.

In the absence of public and precise government instructions, the job of “explainer” has fallen to private pension providers, with uneven results.

“We believe there’s a high level of confusion among people applying for these pension refunds,” said HSM law firm managing partner Huw Moses. (No direct relation to the biblical figure.) “It appears the law is being interpreted differently by different providers.”

Retirement needs and expectations differ from place to place, and from person to person. Holding workers’ pension funds hostage out of (real or feigned) concern for their long-term financial well-being is condescending and counterproductive.

The government should never have forced employees and employers to adhere to those pension plans in the first place. But now that they have been created, those pension funds rightfully belong to Cayman’s workers – not the pension providers or the government. How and when they spend the money should be no one’s business but their own.

Similarly, the government should never have changed the law to prevent foreign workers from accessing their pension funds. But now that they have, the least they could do is provide clarity on how to follow their damaging (and highly suspect) law.

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  1. Any halfway competent lawyer knows that retrospective law is invariably bad law. And yet this dog’s breakfast of a ‘reform’ was introduced by Tara Rivers, who we are assured is a competent lawyer. Surely some mistake?

    • I thought that every new law is applied prospectively, not retrospectively, unless the legislature have clearly declared such to be their intention.
      There is nothing about such intent in this new Law, therefore it must be applied prospectively.
      Why nobody challenges its retrospective application?

      “To be just, a law ought always to be prospective.”(A Law Dictionary, Adapted to the Constitution and Laws of the United States. By John Bouvier. Published 1856.)

      Retrospective laws to a certain extent, forbidden by the article in the constitution of the United States, which prohibits the passage of ex post facto laws or laws impairing contracts.
      This new pension Law DOES impair existing employment contracts.

  2. Similarly, the government should never have changed the law to prevent foreign workers from accessing their pension funds. But now that they have, the least they could do is provide clarity on how to follow their damaging (and highly suspect) law.

    This editorial has left out the answer to one of its own key questions…the reason this law has been implemented.

    Didn’t the Compass publish an article not so long ago in which Mr. McLaughlin was quoted as saying that one of the reasons was to stop Caymanians from leaving Cayman to go to live and work in Great Britain, which every Caymanian with a full British passport has the right to do, taking their accumulated pension funds with them under the old law…and then returning to live and claim state welfare benefits in Cayman upon retirement age ?

    What evidence does Mr. McLaughlin have to produce that this is a situation that needed to be addressed by a wholesale change in Cayman’s pension law, leading to the current set of circumstances unless this law was selective and meant to spitefully target certain individual Caymanians who have left, are leaving…and will continue to leave to reside in the United Kingdom ?

    If, as some politicians see it, it is a way of shooing out a percentage of foreign workers so that unemployed Caymanians can take their jobs, then it is a short-sighted, ill-planned and ill-timed strategy with very little chance of helping those it is geared to help…and doing more harm than good to all parties involved.

    In any event, Cayman’s pension and employment laws have always been in total conflict with the economic model on which the Cayman Islands is based, so dependent upon foreign labor as it is.

    This change of circumstances, along with the budgetary projections for new work permit fees, can only be seen as a permanent ‘roll-over’ of some of Cayman’s longer termed work-permit holders…essentially sending them on their way permanently, so that they can be replaced by newer faces who will stand no chance of ever establishing anything resembling stability or permanency in Cayman.

    I would not be surprised, if at some time in the future, and in as secretive and surprising a manner as this law was cooked up and passed…the pensions law is again changed to keep those funds in Cayman permanently…and send the pension holder, Caymanian or foreigner, on their way empty handed…keeping those funds in the Cayman Islands to be used as their Govt. sees fit.

    Similar things have happened in other countries, no reason to think it can’t happen there as well.

    • The other point the editorial is missing, that there is no guarantee that any money would be left in 10-20-30 years from now taking into account cyclical nature of financial markets crashes, poor investments returns, political instability etc.