Important and extensive changes to the National Pensions Law were unanimously approved in second reading by the Legislative Assembly on May 12, 2016. All that is needed now is final reading and the Governor’s signature to make the changes into law.
These pending changes will have a major impact on retirement and pension contributions, including:
- Increasing the retirement age 65. This gives members more time to contribute and build their pension savings. It also means that employers must continue contributing for members who work to age 65.
- Increasing the maximum earnings for required member and employer contributions CI$87,000.
- Requiring employers to start making pension contributions for work-permit employees earlier – at six months instead of nine months. Employers must continue contributing on behalf of Caymanian employees as soon as they start working.
- Curbing the ability to refund pension savings beyond a future date to be determined by Cabinet.
The move to abolish refunds has been a key part of pension reform discussions over many years. The change is intended to reduce the possibility of pension members using up their pension benefits before retirement and then depending on the government for financial support. Once the new law is in effect, Cabinet will need to set a date after which pension plan members can no longer obtain a pension benefit cash refund.
Until that date the current rules continue to apply: pension plan members who have ended their employment but are not retired can get a refund of their pension savings after there have been no contributions for two years and they have not been a resident of the Cayman Islands for six months.
Following that date, refunds will only be available under three conditions:
- at the administrators discretion for cash values of less than CI$5,000; or
- where a member reaches age 65 and wants to but is unable to transfer their pension benefit to an approved pension plan, retirement savings account or similar arrangement, or a life annuity; or
- early retirement at age 55.
Funds can also be transferred to a qualified registered international pension plan after the member has resided outside of the Cayman Islands for three years.
Access to your AVCs before retirement
The changes will also allow members to withdraw all or part of their additional voluntary contributions (AVCs) before retirement to address special financial needs, including:
- medical needs where health insurance is inadequate;
- temporary unemployment of up to six months;
- housing needs, including constructing or buying a house or paying a mortgage, but not for rent or similar purposes; and
- any educational purposes.
The government believes the ability to unlock AVCs will encourage members to boost their pension contributions. When your financial priorities change, your voluntary pension savings can be used to help meet your immediate needs.
The rules and conditions to be used by plan administrators to review and approve member applications for AVC withdrawals will be provided by the government after the law goes into effect and Cabinet issues supporting orders. Plan administrators like Silver Thatch will need time to adjust systems and procedures.
Silver Thatch Pension’s encourages all members who may be considering an AVC withdrawal to seek qualified financial planning advice. A professional financial planner will help you explore all the options available, including other sources of financing, and help you to understand your best choices.