Cayman Islands Governor Duncan Taylor on Thursday signed an amendment to the National Pensions Law allowing Caymanians to withdraw a certain amount of money from their retirement funds to purchase a home, land or pay off a mortgage.
Caymanians employed in the private sector can withdraw as much as $35,000 from their retirement plans for such a purchase. Non-Caymanians and Caymanian civil servants who are participants in the Public Service Pensions fund plans cannot participate in the swap.
The pensions amendment bill was one of two pieces of legislation passed earlier this year by the Legislative Assembly that came under constitutional challenge from North Side MLA Ezzard Miller, who wrote to Governor Taylor in October “inviting” him not to sign either the pensions bill or an amendment to the country’s Immigration Law. Mr. Miller argued both bills were passed too quickly – not having adhered to the required 21-day publication period prior to being brought to the LA.
The 21-day publication period can be disregarded if the bill is brought “in a case of emergency”.
Governor Taylor agreed in both cases the ruling government had clearly articulated it’s reasons for bypassing the 21-day required timeline.
The pension amendment is aimed at assisting Caymanians with regard to home ownership. However, money withdrawn from a retirement plan is not exactly free and clear.
Home buyers that do not currently own a property who make withdrawals from their pension accounts to help meet a down payment for their new property would have to pay the full amount back into the pension fund if they sell the home prior to retirement.
According to the amendments: “Where before attaining the normal retirement age, a person sells the dwelling unit purchased or constructed or the residential land purchase through the use of a deposit … the person shall, upon completion of the sale return the original amount of deposit or 10 per cent of the fair market value of the dwelling unit or residential land, whichever is greater, back to his pension plan account.”
Not paying back the pension contribution in such a case could lead to a $20,000 fine or two years imprisonment upon conviction.
If the property or land purchased is kept until after retirement age, the money withdrawn would not have to be given back when and if the property is sold.
The bill also requires slightly higher contributions to the pension plan if a person makes a withdrawal under the amended law. According to the amendments: “In addition to the amount the person is required to contribute to a pension plan … [the person shall] contribute an additional amount of 1 per cent of his earnings to the pension plan from the month immediately following the date of the issuance of the cheque [for the down payment, property purchase or mortgage payoff].”
The added 1 per cent payment to the person’s retirement fund, which would raise the typical 5 per cent pension contribution to 6 per cent, would continue for either 10 years from the date, until the total amount of contributions equal the amount withdrawn, or until the person attains retirement age – whichever comes first.
It would also be an offence under the amended pensions law for an employee making a withdrawal not to pay the additional 1 per cent contribution.
The person’s employer is not required to make any additional pension contributions above and beyond the legally mandated 5 per cent of salary if their employee decides to make a withdrawal from their retirement account.
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