Monetary contributions to private sector pension funds need to be increased for both Cayman Islands employers and employees, Premier Alden McLaughlin said last week.
In addition to higher payments into that system, the private pension funds need to be allowed to have “greater latitude” in what types of investments may be pursued, the premier said during a Legislative Assembly debate.
“There are many people who have now retired who will only have seen very little benefit of [the private sector] scheme,” Mr. McLaughlin said. “The number of Caymanians on financial assistance continues to grow every year.
“When I look at what the Cayman Islands is going to have to pay just to keep the wolf from the door over the next 10 to 15 years, I am scared.”
Mr. McLaughlin’s comments came during a debate on a private members’ motion filed by George Town Central MLA Kenneth Bryan which sought to increase the amount Caymanians can “borrow” from private sector pension funds to pay off a home loan from $35,000 to $100,000.
The premier said government could not accept the motion at the $100,000 amount because it would serve to imperil existing pension accounts for people who will need that money when they retire.
Instead, the government agreed to reduce the maximum amount of withdrawal from the retirement fund proposed in the motion from $100,000 to $50,000. Mr. Bryan agreed to the compromise.
If and when government does act on the motion, it would not affect government pensions managed by the Public Service Pensions Board, which is governed under a different law. Only Caymanians with private sector pension funds could affect the additional withdrawal and only in cases where they used the money to pay off an existing mortgage.
Right now, most private sector employees must pay five percent of their monthly salary into a retirement savings account managed by one of six private sector fund administrators.
Employers must match those contributions dollar-for-dollar.
“Even with the pension scheme that is currently in place they won’t, most of them, have anywhere near enough money to pay the daily, weekly … costs of living,” the premier said. “Who is going to look after these people, our people, if they don’t have pensions?”
The motion’s sponsor, Mr. Bryan, said his intent in filing the motion was to look after Caymanians who are currently losing their homes in bank foreclosures by allowing them to take additional money from their retirement accounts to pay off the mortgage.
Bodden Town West MLA Chris Saunders put it this way: “To the person in danger of losing their house today, the last thing they’re thinking about is their retirement tomorrow.”
Mr. Bryan said his motion did not intend to endanger people’s retirement funds and that some provision would have to be made to allow those individuals participating in the withdrawal scheme to “put back” the money they have taken out over time.
“It’s not any magic bullet in respect to [home] foreclosures, because that’s a very multifaceted problem,” Mr. Bryan said. “But for some people dealing with foreclosures, this can be an out clause for them.
“There might be minor ripples in the pension pool, but the ripple or the wave that would help Caymanians would be more helpful to our country as a whole.”
In amendments to the Cayman Islands National Pensions Law approved in 2016, lawmakers did not address the mandatory pension contributions to private sector plans.
These were left at the current levels of five percent of salary for employees and a matching five percent of salary for the employers.
The bill did increase the maximum amount of salary used to calculate monthly contributions from $60,000 per year to $87,000 per year.
In other words, if a person makes over $60,000, a greater portion of their salary must be paid toward their retirement.
The 2016 amendment law also did not change investment rules for private sector plans, the administrators of which have long complained that government had created a more favorable playing field for its own pension plan than for the private sector funds.
There are very few restrictions placed on the investment of funds for Public Service Pensions and in recent years, the public sector fund’s investment returns have been much higher.