The Department of Labour and Pensions will review whether pension plan administrators are making emergency pension-withdrawal payments within the 45-day timeframe mandated by April’s changes to the National Pensions Law.
The law states that administrators who pay late commit an offence and could face a $10,000 fine and a one-year prison term.
In a statement, the department said it believes that most applications are processed in a timely manner, but where breaches occur, it would refer those cases to the Office of the Director of Public Prosecutions.
The pensions department encouraged anyone who has a complaint about the handling of their withdrawal application by a pension provider to file an appeal with the department’s director by email at [email protected].
Cayman’s pension providers have found themselves at the receiving end of much social media criticism for their failure to respond to emergency withdrawal applications and the long time it is taking to them pay out.
Public Accounts Committee hearing
One plan administrator admitted at a Public Accounts Committee hearing last week that the provider may possibly violate the law for failing to pay within 45 days.
The committee heard about the various challenges of complying with the pension withdrawal requests. In particular, the need to keep administration costs low and operations lean has come to haunt the providers as they had to respond to an unusually high volume of requests.
BritCay was one of the providers that pleaded with the public for patience because it was “physically impossible” to immediately respond to applications.
The pension provider approved more than 6,000 withdrawals out of more than 9,000 applications. In the first two days alone, BritCay received about 2,000 phone calls, said Neil Wright, BritCay’s pension and life operations manager.
The company had to hire 11 temporary staff and redeploy seven additional staff within the company to assist with client calls, he said.
Committee member Chris Saunders expressed sympathy for the plan administrators. He said, given the huge volume of applications, which mean additional work for the plan providers, the public should have some level of patience.
Turning illiquid investments into cash also takes time, because if done too quickly, it could cause the savers to lose money, he noted.
Fidelity was the plan administrator singled out for the most criticism on Facebook. Like other providers, Fidelity had to hire a software company to design an online form, as well as hire new staff to process the applications.
However, technical problems with the upload form, in addition to wrong, missing or non-readable information submitted by applicants, plagued the provider in the first weeks.
Fidelity said it received more than 3,000 withdrawal applications out of a total of 11,000 members.
Brett Hill, president of Fidelity Pension Services, said the administrator typically only has three staff, and adding new employees took time.
Hill pointed out that the 45 days stipulated by the law for an approved withdrawal to be paid out is not as much as time as it may appear.
Because pension plans are typically structured as funds that invest into other funds, determining the value of the fund takes time.
The value of funds is not calculated daily but monthly, and getting the net asset value (NAV) from the invested funds typically takes up to 14 days. In practice, this means that to determine the value of a pension account, plan administrators have to wait until the end of the month for the individual funds to calculate their NAVs and report them.
Simply taking the previous month’s NAV to calculate the withdrawal amount is not possible, because it could potentially disadvantage the members who are not taking their money out, if the markets subsequently declined.
Instead of 45 days, this gives the plan providers – in certain cases – as little as one day to make the payment, Hill said.
However, he assured members that everybody who applied for a withdrawal in May will be paid before the end of June, based on the May value of the pension accounts.