The Cayman Islands is different from many other jurisdictions when it comes to pensions. There are two pension sectors in Cayman; privately funded pension plans and Government funded pension plans for civil servants. (see Government Pensions for information on Government funded pension plans).
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The private sector pension plans are funded by employees and employers but are Government-mandated. The National Pensions Act requires employers to remit a total of 10% of the employee’s monthly earnings to an approved pension plan, with no more than 5% coming from the employee and no less than 5% coming from the employer. Those who are self-employed are required to contribute 10% of their earnings to a pension plan.
How Private Pensions Work in the Cayman Islands
When you retire, whether that is 65 (the official ‘age of pension entitlement’) or as early as 50 with special restrictions, you can draw down a percentage of your pension pot based on your age. At 65, this would be between 2.05% and 5.11% of your total pension pot, or, if your maximum drawdown allowance does not reach an annual total of CI$15,000, then you are given an annual allowance of CI$15,000, which can be paid monthly, quarterly or annually until the balance of your pension is zero. If a member has a pension balance of CI$200,000 and wishes to draw down the maximum from their pension at age 65, this is calculated as $200,000 x .0511, which gives a total of CI$10,220. As this is below the minimum threshold of CI$15,000, the member will receive CI$15,000 per annum. If, however, the member had a balance of CI$500,000 at 65, then they would receive CI$25,550 per annum. This drawdown schedule can be found on some pension plan websites. There are a few other things to consider:
If a member has made additional voluntary contributions (AVCs), these can be withdrawn as a lump sum at normal retirement (65).
Before retirement, members can access their AVCs for four specific ‘hardship’ reasons, namely – temporary unemployment for a maximum of six months, medical bills for non-elective medical treatment only, housing to purchase land or a home, construct a home or pay off the balance of a mortgage, or education extended to the member’s children if in full-time education.
All pension plans are required to provide each member with a semi-annual statement, which must show the date payments were received from the employer, the amount received and the contribution period.
Employers that avoid paying pensions are issued strict fines. A first conviction of non-compliance attracts a fine of CI$20,000 or imprisonment for up to two years, or both. A second offense attracts a fine of CI$50,000, 3 years in jail, or both.
Interest shall accrue on delinquent contributions that are not received by the 15th day following the earnings month. The administrator of the pension is required to notify the affected employees within 60 days of the notification to the Director.
Private pensions were made mandatory in 1998, and since then, the Government has granted pension holidays in 2010 and again from April 2020 to September 2022. Coupled with the emergency withdrawals during COVID-19, which saw members withdraw almost CI$500 million from various plans, many have good reason to worry that their pension will not provide a meaningful income when they retire. In fact, at the current contribution rate of 10%, a member will contribute one year of their average earnings for every 10 years they are contributing to their plan, meaning that those looking to retire in the near future might expect to see a balance representing just two years’ worth of their income, plus investment returns, less fees and withdrawals.
As most retirement professionals believe that a person should contribute between 17% and 20% to their retirement investment for a minimum of 40 years, Cayman’s private pension system will achieve little more than an income supplement for most pensioners. We understand that the Government has been well aware of this for many years and are looking into increasing the contribution rate to 15% in late 2024. In many other jurisdictions, individuals benefit from government-funded social security to supplement their retirement income; they are given tax breaks on registered savings plans if the money is not withdrawn until retirement and have higher pension contribution rates. As these benefits do not yet exist in Cayman, individuals should speak with their pension provider or a financial planner if they are concerned about their retirement income. At a minimum, it is recommended that those who withdrew funds from their pension account in 2020 should make provisions to repay those funds to their pension by making additional voluntary contributions over a few years when they have the means to do so. After these additional contributions have been deducted from the employee’s salary for some time, it’s likely the funds won’t even be missed and the increased contribution rate could be carried forward indefinitely. Ultimately, this will make for a more meaningful and comfortable retirement.
Recent Changes
In June 2024, due to the rising cost of living, Government increased the amount pensioners in the private sector can take from their retirement funds at retirement age from a Retirement Savings Arrangement ‘RSA’. This annual payment of funds has increased by 6.2%, from CI$14,125 in 2023, to CI$15,000 per year. The amount a retired person can withdraw is based on their age and account value. When the amount calculated from the indicated percentage in the Drawdown schedule is less than CI$15,000, the member is free to take the higher sum of CI$15,000. However, if the amount calculated is greater than CI$15,000, the member is free to take the greater amount. For more information, contact your pension plan provider directly.
If you have a query, call the Department of Labour and Pensions (Tel: (345) 945 8960) or visit their website.
Other Recent Amendments
In January 2023, the National Pensions (Amendment) Act 2016, Commencement Order 2022 was passed with several notable amendments being introduced through the course of the year:
- From January 1st 2023, each pension plan is required to hold an Annual General Meeting within 6 months of the financial year end of the plan and must provide evidence of the meeting (agenda, attendance record, minutes and copies of other documents distributed) to the Department of Labour and Pensions within 3 months thereafter. Statements must also be provided at least semi-annually to each member and must show the date payments were received from the employer, amount received and the contribution period for which payment is made for each employer and employee.
- From March 1st 2023, higher fines may be levied on employers that avoid paying pensions. On summary conviction for a first offence of non-compliance, employers can receive fines up to CI$20,000 or possible imprisonment for up to 2 years, or both. Second offences can attract fines up to CI$50,000 or imprisonment up to 3 years, or both.
- From July 1st 2023, interest shall accrue on delinquent contributions (contributions not received by the 15th day following the earnings month) and are reportable to the Director on the 15th of the following month. Additionally, the administrator is to notify the affected employees within 60 days of the notification to the Director.
If you leave the Cayman Islands
Generally, should you choose to leave the Cayman Islands and the total value of your pension assets are less that CI$5,000, you may request to have your funds paid out to you and this is usually available six to eight weeks after your last contribution has been received by the pension provider.
However, if your pension pot is greater than CI$5,000 and you are permanently leaving the Cayman Islands, foreign workers then have to wait two years, after leaving the Cayman Islands, before they can transfer their pension benefit overseas to an established pension plan in their own country. 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.
If you have a query regarding the new Pension Act, call the Department of Labour and Pensions at (345) 945 8960 or visit their website.
