A large-scale uptake is anticipated by private-sector workers literally capitalising on government’s offer allowing them early access to their pension funds.
The Cayman Islands Government (CIG) announced the extraordinary move as part of a package of relief measures to counter the adverse financial impact of the COVID-19 crisis in the territory.
Under the plan as outlined by Hon. Premier Alden McLaughlin, private-sector employees will be able to make withdrawals from their pension pot to tide them over during this period of economic disruption with its consequential drain on personal and family incomes and savings.
Employees will be able to withdraw all of the first $KY 10,000 of their accrued pension but will be limited to a maximum 25% of any amount beyond that.
In addition to the possibility of dipping into the pension pot early, the government is also allowing a six-month pensions payments holiday.
These options are not available to civil servants whose jobs are secured and who recently received a 5% salary increase, the Premier said.
The offer is also not available to retirees are already drawing their pension.
Following approval by Cabinet, the proposal will go to the Legislative Assembly on Thursday for ratification.
The Official Opposition has broadly welcomed the plan, but independent Opposition Member Ezzard Miller has deep reservations.
There are are also rumblings of concern reportedly coming from within the pensions providers sector over the dent this could put into the pension fund.
It is also speculated that some recipients who are work-permit holders would take the maximum amount and depart the territory.
However, Premier McLaughlin was quick to sound a note of caution seen as intended to avert a spending spree, although the early release of those pension funds is estimated to inject potentially around half a billion dollars into the struggling local economy.
“A lot of us are going to have a real shock when we see what the accounts look like because of the crash in the global financial market,” he said, adding that “a lot of those values are going to be significantly less than the last statement that anyone got. That’s not something to look forward to but it is something to be prepared for.”
Mr McLaughlin said he was also mindful of the concerns that this move could deplete the overall pension fund.
Reflecting on the amount persons are being allowed to withdraw from their pension pot, he acknowledged that “on the one hand I know there will be those, including the pension providers, who think that that is too much and on the other hand I know there are those who think it’s not enough.”
The Premier, however, feels that the government decision is striking the right balance at this point.
“None of us knows how long this crisis is going to last,” he said.
And, in a remark clearly directed at those persons who will benefit from the windfall being made available to them, he offered some sage advice.
“The thing with money is that it tends to burn your hands and when you have it you tend to spend it.”
THE MILLER ALTERNATIVE
And that’s one of the reasons why Independent Opposition Member Ezzard Miller has what he calls “some very serious concerns with the proposed plan for pension drawdown by individual pensioners.”
He argues that “the proposal to provide persons substantial cash payments by drawing that cash from their pension funds without imposing realistic conditions, especially with no guaranteed timeline for when this lockdown will end, is a recipe for disaster.”
In a prepared statement ahead of Thursday’s meeting which will debate the government’s pensions relief plan, he proposed an alternative model.
According to Mr Miller, the government should “devise a solution that retains employment and income by equipping employers with the necessary financial wherewithal to continue to pay their employees.”
“This better solution,” he contends, “would result in employees retaining their employment, rather than the government initiating replacing their salary with a drawdown on their pension plans or by a subsidy from the government’s Needs Assessment Unit (NAU).
Mr Miller says his plan “would still enable employees to benefit from a utilization of their pension funds. The big benefit, however, would be to protect pensions from being reduced to a point where employees will ultimately have to resort to the NAU for supplemental income in current conditions or during their pensionable years.”
He says his plan “could be developed with the aid of financial experts in Cayman, where we are reputed to have some of the best in the world.”