Who is affected by the National Pension (Amendment) Law 2016 (‘the Law’)?
The Law and the Normal Age of Pension Entitlement Option Order (‘NAPEO’) NAPEO affect pension plans (‘Pension Plans’) established and maintained by a pension provider regulated by the Cayman Islands Monetary Authority for the benefit of employees (‘Employees’) in the Cayman Islands (‘Cayman’). Those who work for the Cayman government contribute to the Public Service Pension Fund (‘PSPF’) and information on the PSPF and the Public Service Pensions Law (2017 Revision) (‘PSPLaw’) is in the relevant sections below.
What is the ‘normal age of pension entitlement’?
The ‘normal age of pension entitlement’ (‘Entitlement Age') is 65 years of age. The term replaces the expression ‘normal retirement age’ (previously 60 years of age).
What is the Early Entitlement Age'?
The early pension entitlement age (‘Early Entitlement Age') is 55 (previously 50 years of age).
What is the Normal Age of Pension Entitlement Option Order (‘NAPEO’)?
NAPEO provides that a Person aged 48 or over in 2017 can choose to retain 60 as their Entitlement Age, and opt for an Early Entitlement Age of 50 years old.
What if I am only 47 in 2017?
All those aged 47 or younger in 2017 have the new Entitlement Age and Early Entitlement Age above.
Who has to contribute to a Pension Plan?
Employees - All Employees between 18 and 65 years of age must contribute 5% of their earnings to a Pension Plan unless they are:
(a) under 23 and in full- time education or
(b) household domestics (such as housekeepers or gardeners) who do not have Permanent Resident status.
An Employee may contribute more, but they must agree this with their Employer and decide whether this will be an Additional Voluntary Contribution (which the Employee can access before they reach the Entitlement Age if they need help with housing, medical, educational and temporary unemployment expenses).
Employers - All Employers (‘Employers’) must contribute 5% to an Employee’s Pension Plan. If an Employer contributes more that 5% they cannot deduct more than 5% from amount they pay to the Employee.
Self- Employed - Those who are self-employed must contribute 10% (effectively the Employer and Employee’s contributions).
What pension contributions must be paid?
The amount of income on which pension contributions must be paid (the year’s maximum pensionable earnings) is CI$87,000 (previously CI$60,000). Both Employer and Employee must pay 5%. They are free to pay contributions on earnings above this amount but there is no statutory requirement to do so.
How will I know what contributions have been made?
Employers are required to keep (for a minimum of five years) records of all sums they pay to an Employee’s Pension Plan and to provide Employees with information about the plan and contributions.
What are the penalties for default?
The Law introduced new penalties, including imprisonment, and increased the amount of fines. For example, the penalty for an employer who does not enroll an employee in a registered pension plan is a fine of CI$10,000, or a term of imprisonment of a year or both (up from fines of CI$5,000 and CI$500 per day). (The precise position on penalties needs to be checked until all the new regulations have been put in place.)
What is the position for young people who are studying?
The definition of ‘Employee’ was amended under the Law so that Caymanians ‘ under twenty-three years of age and pursuing full time education’ are not required to pay contributions to a registered pension plan, and nor are their Employers.
Can I cash in my Pension Plan when I leave Cayman?
The Law has changed the position so that as of 31 December 2017 (when the provision comes into force) an Employee is only allowed to transfer their contributions to a pension plan, pension entitlement savings arrangement or life annuity outside Cayman where:
- the Employee’s employment has been terminated;
- he or she no longer resides Cayman; and
- he or she has not made contributions to the plan for two years or more.
What is the position on refunds?
Changes under the Law relating to refunds will take effect on 31 December 2019. Under the changes a refund will only be able to be paid:
- on application by the plan’s administrator, who must show
- that the plan is regulated and allows the refund, and
- the Person has reached Entitlement Age, and
- provides evidence to the satisfaction of the Director of Labour and Pensions that the Person cannot transfer his or her pension benefits to another pension plan, pension entitlement savings arrangement or life annuity, and
- the Director of Labour and Pensions approves.
Do these changes apply to all workers including public workers such as teachers, doctors and nurses?
Those who work for the Cayman government contribute to the Public Service Pension Fund (‘PSPF’). A new law has been passed to govern the PSPF, the Public Service Pensions Law (2017 Revision) (‘PSPLaw’) and the Public Service Pensions Regulations (2017 Revision) have been published in the Gazette on 31 May 2017 and are now in force.
What is the ‘normal retirement age’ under the PSPLaw?
Under the PSPLaw, ‘normal retirement age’ is defined as sixty five, and upon reaching that age those who have contributed and are entitled to benefit will be entitled to receive an immediate pension.
What is the Early retirement age' under the PSPLaw?
Under the PSP Law, ‘early retirement age’ is defined as meaning:
(a) in relation to an active participant employed prior to the effective date –
(i) any age between ages fifty and fifty-nine inclusive, after the participant has completed at least ten years of
qualifying service; or
(ii) any age between ages sixty and sixty - four inclusive;
(b) in relation to a participant employed on or after the effective date, any age between ages fifty-five and sixty-four inclusive, after the participant has completed at least ten years of qualifying service;
(c) in relation to a person who, on or after the effective date [9 September 2016], is a deferred vested participant or retired participant an d incurs a permitted break in service as prescribed in regulations –
(i) any age between ages fifty and fifty-nine inclusive, after the participant has completed at least ten years of qualifying service; or
(ii) any age between ages sixty and sixty-four inclusive; and
(d) in relation to a person who, on or after the effective date [9 September 2016], is a deferred vested participant or retired participant and does not incur a permitted break in service as prescribed in regulations, any age between ages fifty-five and sixty-four inclusive, after the participant has completed ten years of qualifying service; and, for the purposes of this definition, “effective date” means the date of commencement of the Public Service Pensions (Amendment) Law, 2016 [9 September 2016]
Upon reaching the early retirement age, those who have contributed and are entitled to benefit will be eligible to retire from Service with an immediate pension.
Can Solomon Harris help?
If you need any advice on any aspect of the new legislation or on pensions generally, contact us at email@example.com to see how we can help.
The information contained in this article is necessarily brief and general in nature and does not constitute legal advice. Appropriate legal or other professional advice should be sought for any specific matter.