Pension for property swap possible

George Town MLA Ellio Solomon told the Caymanian Compass last week that a pension-for-property swap he proposed more than a year ago could come before the country’s Legislative Assembly as early as this month.  

“I’ve been promised that it will be brought in September,” Mr. Solomon said.  

The assembly is scheduled to begin meeting again on Wednesday and at press time the change that would allow people to withdraw money from their pension savings to use as a down payment on their primary residence had not been set in formal legislation.  

Mr. Solomon and Bodden Town MLA Dwayne Seymour supported the proposal in a private members motion before the LA last year as a way to encourage first time Caymanian home-buyers to invest in property.  

According to Mr. Solomon’s proposal – which would apply only to those with Caymanian Status – a person would be allowed to withdraw up to CI$35,000 from their local retirement savings account solely for the purpose of making a down payment on their homes or in purchasing a piece of property they could later build on. 

Government Minister Rolston Anglin, who has responsibility for national pensions, acknowledged that many Caymanians do have difficulty in acquiring “capital for home ownership”. However, Mr. Anglin said at the time that careful consideration would have to be given to the details of the proposal which he applauded Messrs. Solomon and Seymour for making.  

Mr. Solomon’s motion contemplated allowing both private sector and government employees to make the early withdrawal.  

This concerned opposition MLA Kurt Tibbetts who wondered what would happen if some 1,000 civil servants wanted to take advantage of the plan and withdraw up to $35,000 for a down payment on a home or land. Mr. Tibbetts said such a take could mean a $35 million one-time hit to the public service pensions plan.  

“If that fund were robbed of $35 million within any period of time … that fund would be in dire straits,” Mr. Tibbetts said. 

Pension analysis  

Desmond Kinch of Overseas Asset Management said last year that he would advise government to raise its current pension fund contribution rates for both the public and private sectors, if Mr. Solomon’s proposal was approved.  

“Ellio’s idea would be good if it was combined with an increase in contribution rate; a requirement that any withdrawal from someone’s pension plan be used to buy a piece of land on which the person intends to build their principal residence or to buy their principal residence; and a further requirement that if someone sells that land or house and remains in the Cayman Islands, they have to either use the funds to buy another principal residence or deposit the funds back in their pension account,” Mr. Kinch said.  

The issue, Mr. Kinch said, is how to keep someone’s retirement fund solvent if a temporary withdrawal is made.  

“The problem with reducing the amount of savings available for retirement spending – if people can use funds in their retirement account to buy a property without topping up their account at the same time – is that you can’t take the equity in your house to the supermarket or use it to pay your CUC bill when you retire,” Mr. Kinch said.  

A 2006 consultant’s report done on the Cayman Islands private sector pension systems identified that the current required contribution amount, 10 per cent of an individual’s salary (5 per cent paid by the employee and 5 per cent paid by the employer) is not enough in most cases to cover a person’s retirement. 

Civil servants currently have a total of 12 per cent of their salaries paid into the Public Service Pensions Fund over and above what they receive in monthly emoluments.  

The National Pensions Law allows individuals to contribute more to pensions if they wish, but their employer does not have to match those contributions beyond 5 per cent of salary.