Curious about the National Pension Law? Find out about the top changes to this new law and how those changes may affect you and your retirement plans.
Cayman’s new pension law has been a hot topic since it was passed in the Legislative Assembly in late 2016 and then later came into effect in early 2017. While some provisions have been welcomed such as the increases made to the pensionable age and pension earnings, others have been criticised.
The biggest source of contention has been that foreign workers will no longer be able to “cash out” their contributions before retirement age when they leave the Cayman Islands. They will, however, be allowed to transfer their pension benefits to an established pension plan in their home country.
The biggest push back on this provision has come from businesses that depend largely on foreign workers to manage their operations (e.g. hotels and other service-based businesses). The fear is that this provision will be seen as so undesirable, that it will trigger a high turnover of foreign workers who normally look forward to receiving their pension contributions in a lump sum before retirement when they return home.
But proponents of this new provision believe that these fears are unfounded, as the Cayman Islands is a highly desirable, tax neutral jurisdiction that offers many foreign workers a far greater earning potential than their home countries. They also maintain that a pension plan was never meant to operate as a “savings account” for employees to “cash out” before retirement age. They argue a pension plan is meant for retirement.
It is important to note that in other jurisdictions such as the United States for example, income tax is collected (e.g. social security) and set aside for retirement or disability. State Pension in the U.K. operates similarly.
Below are 10 important provisions of Cayman’s new Pension Law that everyone needs to know.
1. Normal Retirement Age Removed
The new law removes the “normal retirement age” concept and replaces it with normal age of pension entitlement and increasing the retirement age from 60 to 65 years old. There is a caveat however, employees who will turn 60 in the next 12 years (i.e. between 1 January 2017 and 31 December 2029) can claim their pension benefits then and not wait until age 65. Age 60 is not a mandatory retirement age. It is simply the age in which a person can claim pension benefits. Early retirement can be taken at 55, so persons between 48-50 years in 2017, will therefore be eligible.
2. Maximum Pensionable Earnings Increased
Maximum pensionable earnings have been increased from CI$60,000 to CI$87,000.
3. Foreign Workers Transfer Benefits in Two Years
Foreign workers will have to wait two years before they can transfer their pension benefit overseas to an established pension plan in their own countries. Also, their employment in the Cayman Islands must be terminated and there can be no contributions to their pension account for two years. *If there are no registered pension providers in a foreign worker’s home country, they may keep their pension plans here in the Cayman Islands and continue to contribute to it until they reach retirement age. Then, they will be able to eligible to receive their contributions.
4. All Employees & Self-Employed Persons must have a Pension Plan
All employees between 18 and 65 years of age must contribute to a pension plan. Two exceptions apply: Caymanians under the age of 23 years old who are pursuing full time education and non-Permanent Resident “household domestics” (e.g. housekeepers or gardeners). It is also mandatory that all self employed persons contribute 10 percent of their earnings to a pension plan.
5. Contributions to a Pension Plan must be a Minimum of 5% of Earnings
All employees must contribute a minimum of five percent of their earnings to a pension plan until retirement age. Employees may contribute more than five percent, but they must first negotiate this with their employer. This would be considered an Additional Voluntary Contribution unless the employee states otherwise. Employers can contribute more than five percent to a plan, but must only deduct five percent from the employee’s earnings.
6. Additional Voluntary Contributions (AVC) can be Accessed
AVC is an extra contribution of funds to a pension plan that is above the minimum amount that either an employer or employee is required to pay. Employees can access their AVC if it is needed before reaching the normal age of pension entitlement. Persons can access their AVC to assist with the following: housing, medical and temporary unemployment expenses and educational needs.
7. No More Pension Refunds After 2019
Employees will no longer be able to receive pension refunds after 30 December 2019 and contributions must cease by the 30th December 2017.
8. Non Compliance Results in Fines & Possible Imprisonment
Employers who fail to pay pension contributions for their employees or even make late payments to pension plans will be fined or may be imprisoned. The administration of an unregistered pension plan may result in a CI$10,000 fine or one year in prison.
9. Record Keeping of Pension Plan Contributions is Mandatory
All employers must keep proper payroll accounts, books and records of all sums paid to an employee’s pension plan for a minimum of five years.
10. All Employees Must be in the Know
All employers must provide their employees with information about their pension plans. Failure to comply with this provision is considered an offense and the employer may be fined up to CI$10,000. Employees may also get detailed information from their registered pension provider.
For more information about Cayman’s Pension Law and the recent changes that may affect your retirement plan, contact the Department of Labour & Pensions (Tel: (345) 945-8960) or your registered pension provider today.