Caymanians will soon be able to dip into their retirement savings to help buy or build homes after new legislation was passed Thursday.
MPs unanimously voted to increase withdrawal limits from private pension funds for mortgage payoffs, home purchase or construction.
Labour Minister Dwayne Seymour, in piloting the amendments to the National Pensions Act at Thursday’s special meeting of Parliament, said the changes were necessary to help Caymanian families that are struggling in the current “economic and housing” climate.
“The proposed pension withdrawals are not emergency withdrawals for immediate cash in hand and are instead strategic withdrawals aimed at facilitating specific life milestones,” he said, as he introduced the amendments.
Members voted in favour of the National Pensions (Amendment) Bill on the third reading.
The law passed with 10 amendments that were made during committee stage.
The key amendments to the bill include increasing the maximum withdrawal allowed for home purchase or construction from $35,000 to $50,000, allowing a maximum of $50,000 for a reduction payment on an existing mortgage or residential land loan, and increasing the withdrawal amount to pay off an existing mortgage from $35,000 to $100,000.
Premier Juliana O’Connor-Connolly, addressing the Parliament following the passage of the bill, said the government has “worked cohesively and indeed rapidly” to address long-standing issues like the pension changes that enjoy “widespread support, and in some cases, unanimous support across both sides of the aisle here in Parliament”.
The amendments to the National Pensions Act, she said, were done in order to bring “urgent relief” to families struggling to maintain home ownership and “in some cases to even access ownership for the rapid rise in interest rates in recent months”.
Withdrawals come with caution
Seymour, in his contribution on the bill, said he was excited for people to get the opportunity to make larger withdrawals; however, he cautioned that there was concern over the future and what the withdrawals would mean for pension payouts.
Those making use of the withdrawals, he said, will be subject to making repayments.
The law changes require applicants to repay an additional 3% contribution, an increase from the previous figure of 1%, into their pension plans.
Seymour pointed out that the special meeting was not just called for the election of the Speaker, “but also to ensure we did all that is possible to make sure this was possible before Christmas”.
“Our mission is crystal clear… empower every Caymanian to have a piece of the land that we call home. These amendments will pave a pathway for people to facilitate home ownership, property investment and mortgage reduction, ultimately enhancing the overall quality of life for Caymanians,” Seymour said, as he sought the support of fellow lawmakers for the changes.
He also said he intends to bring further changes at a later date.
The changes to the law were part of a private member’s motion by Bodden Town West MP Chris Saunders, who got unanimous support for its passage.
He thanked the government for bringing the bill forward as a matter of “priority” because “they recognise that a lot of people have challenges”. He also called on local banks to waive their penalties for early mortgage payoffs, saying now is not the time for profit.
Opposition Leader Roy McTaggart supported the amendments, saying “it does reflect the will of this House in terms of the amendments that we had asked for in the private member’s motion”.
He said he was pleased to see the repayment clause included as it was “important” for the public to do, “otherwise all you’re doing is creating another problem”.
People are not going to be able to just take money out of their pensions and “that’s the end of the story,” he said.
“The public might not like it, but the reality is, this is their pension fund and if you’re taking out what you’re saving for the future to spend it today, you may still end up knocking on the doors of the (Needs Assessment Unit) at some point in their retirement seeking assistance,” he said.
George Town Central MP and Tourism Minister Kenneth Bryan, in his contribution, said though the amendments only apply to people with private pension funds, he assured legislators are not ignoring the struggles that civil servants are facing.
He said that changes are being sought to the Public Service Pensions Act to allow civil servants to withdraw from their pension, but that needs to be approved and assented to by the governor.
Bryan supported West Bay West MP McKeeva Bush’s call for civil servants, who are seeking the same withdrawals as those covered in the pension law changes, to petition the governor.
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I see down the line a number of people knocking on NAU’s doors. 3% repayment when you only have a few years left to repay it will not be sufficient. People need to really think if this is the right decision for them…it wont be for all. I really hope I am wrong about the consequences.
The civil service pension is a defined benefit scheme, not a defined contribution scheme. There is therefore no “fund” to withdraw from. Current pensioners are funded by current employees.
I encourage everyone to read the actuaries reports published regularly (if not annually) on civil service pensions, they show a fiscal time bomb waiting to go off. Long-term issue, not being acted upon by successive rounds of elected politicians.
Whilst understanding the short-term needs that have lead to this legislation, it is a reality that withdrawing long-term funds (pension savings) for short-term cost of living needs is, again, storing up long-term fiscal time bomb issues.
All it will take for the time bomb to go off is for any kind of structural economic slowdown in the growth of the Cayman economy. There seems to be a perception that it will go on forever, which may be so, but what if it doesn’t? Issues like pensions, medical care, education, lack of all kinds of infrastructure, they all become far, far more difficult to fund and so address if the economy does slow down.