Pensions need ‘radical’ change
(CNS): The future of private pension plans looks distinctly shaky after Premier Alden McLaughlin warned that a national plan may be in the pipeline to replace the current inadequate system. With workers in the private sector being given the opportunity to take a chunk out of their pensions to see them through the economic slump resulting from the COVID-19 pandemic, a political consensus is emerging that a radical change is needed.
Speaking at Tuesday’s press briefing, the premier said that it would require major legislative changes to force the current pension companies to invest all of the funds they have in local institutions to fund a national cheap loan scheme, a proposal made by Ezzard Miller (NS) when legislators met last week.
But McLaughlin implied that the days of having nine different plans could be numbered in any event, and a much more significant change was needed.
“The pension scheme that we were sold as a government over 20 years ago was not, and is not, fit for purpose,” he said, noting that it was sold to the country on the basis that government could never do as good a job as the private sector.
The premier questioned how it was that the most someone could expect after working their whole life was $12,000 per year, possibly only for a few years, based on the 10% contributions. And he asked how anyone could retire on that amount because you cannot survive in Cayman on $1,000 a month.
Complaining that the only people the current system worked for was the nine administrators who are all charging fees, the premier said the system had to be changed, “and radically so”. He warned that in the future the strain of those in need in retirement will break government, and coupled with healthcare costs, it will be bankrupt if something is not done to address the current scheme.
McLaughlin said that because his “contract expires next May”, future governments would need to tackle this issue, but he said he had “very strong views” about what it should look like.
He said 10% of a person’s earnings was never going to be enough to keep them in retirement for another 25 years, and he pointed out that government would need to find some other way of increasing the yield.
“The government pension scheme has found a way to make it work.. That is the model that we ought to have a adopted for the private pension schemes as well,” McLaughlin said, adding that whatever happens in future, it had to be a national scheme run by government.
The premier said that would upset a lot of people but with the current situation, where nine administrators were creaming off money, was too expensive.
See Tuesday’s press briefing on CIGTV below, starting with the CNS question about pensions:
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Category: Business, Local News
I paid my 10% into my Cayman pension scheme for 13.5 years, during which time the stock market saw one of the best returns in history. Yet at the end of that time, my pension pot was still worth less than the total contributions paid in because of the incredibly bad investment returns and the unbelievably high charges.
I took $12,000 the first year, $3400 the next and now it’s all gone.
I’d have been much better off investing that money myself.
Massive rip off, same as the medical insurance. Cayman needs real leaders who change things for the better instead of filling their own pockets and approving massive benefits for MLAs.
The main problem you had was you started your pension too late, and you were paying in too little for you to ever have got a decent pension pot. The younger generation have more of a chance of having some savings by retirement, but anyone who is retiring in the next 10 years, or who have retired already, won’t have had long enough to have saved enough money to live on. On your numbers, paying in 100/month and starting to save later on in life isn’t going to amount to much I’m afraid. If the fund had added 5% per year for 13 years you would have had an extra $5k, which would have been nice, but would still have run out in year 2. People need to save an awful lot. Lets say you were happy with 12k/year, if you were to live for the next 30 years in retirement you would need about $350,000 saved up, or put it another way, you would have had to pay in $26,000 for each of your 13.5 years of saving, maybe $22,000 if the fund had returned 5% per year. The main benefit is that your employer would have paid in half of that cash, so you put in $7,700 and took $15,400 out….assuming you weren’t self employed.
Do not confuse real leaders with greedy SOBs.
The future bankruptcy of the Cayman islands is due to the past and present Government “doing and incredible job” of financial responsibility that started with a law requiring private individuals and businesses to give them part of their paychecks. This was done under the lie that they would give this money back some day when it was needed. CIG should not be in the pension or healthcare business. Especially when they have shown time and time again that they don’t even have the expertise to handle garbage collection.
Please do us a favour and get cracking on the discussions and implementation of something that we be more beneficial than the mess we now have. Don’t let it languish as the mangroves did for so long. I understand you won’t be the Premier for the next term but that is no reason not to start on it once we get over this Ovid 19.” Let this me your next “ONE THING”
I agree that a radical change is needed for pensions – it can’t remain the same. As an expat, I am planning to be here for 10 years and contribute CI$8,700 a year into my pension. When I retire, this is worth about CI$350 per month. I will be withdrawing from my pension plan under the new legislation!
No question. Everyone should withdraw as much as possible and put it somewhere else.
Putting mine in my mattress, will still get a better return
You don’t have to leave the funds here, you can transfer it to a comparable pension plan in your home country once you’ve been out of the country, and stopped payments, for 2 years. There was supposed to be a list of ‘approved plans’ that you could transfer to, but I don’t think that ever got done.
The solution is to let people manage their own pensions. The idea that private companies will provide a better return is ludicrous, as has been proved. People who have invested instead in buying a second apartment with savings, or even in purchasing their own house are way ahead of investments in the stock and bond markets.
The idea that Government will be better than private companies is also questionable. Government takes a long time to act, and most governments around the world are in debt. The few counter-examples, like Norway, generally have enormous sovereign wealth.
Generally agree except you could have done as well or better with an S&P 500 index fund. The stock market is a good place to be. If you dont want to pay attention, buy a couple of good mutual funds.
You’re right If some local company could offer a couple of simple – low capital, low fee – index funds to private persons in Cayman it would be great. All the ones I’ve seen so far have either required a ‘high’ investment or published returns worse than the index, and worse than I could get at Credit Union. For all the people saying there are better options than the pension companies, care to post on here where you found them?
While I agree with Premier Alden McLaughlin it is unfortunate that he did not do something about the problem when he had the power to bring about the required changes.
The issue of pension and health care has been around for years and somehow the government couldn’t see past their nose bridge to do anything about it in the last 7 years in office. They had their chance and couldn’t get it down we must change the gov.
Compare the days they sit with the days the UK parliament sits. They do not really work at all. In most cases we are safer that way though.
Let’s get back to work.
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Want a new drug? Ask Huey Lewis
Everyone agrees and has agreed for years that $12000 a year in pension regardless of how much you have in it, is unworkable, but for years no government has done anything about it. These elected officials do not live in our world, therefore they do not care.
Surprisingly, I have seen some great returns with the Public Service Pension Plan. I say surprisingly because whenever you speak to someone from the PSPB they seem to be totally incompetent but, whoever is actually making the investment decisions, is doing a good job. The money we have in a Silver Thatch Plan is doing dismally though…the only gains we only ever seem to accrue are the result of the money we continue to put in each month! I always wondered why these private entity “pros” couldn’t match the rates of return the public sector pension plan was getting…maybe Alden has explained why now..? I’m not a pension pro so maybe someone “in the know” can explain.
The investment regulations for the private plans are very restrictive and are the same regulations since 1998, but the Public Service Pension Board does not have to abide by the investment regulations. The regulations were supposed to be changed in 2016 but government has done nothing. Blame government.
3:15pm your 100% spot on, I have a series of communications from 2016 with the pension office and few Leaders that were bbc, wherein I warned the government of future impending markets events and the need to change the pensions law to protect people’s pensions.
I was told changes to the law were in the works, but that was just window dressing. Alden I told you so, like many I’m sure!
The Cayman Islands has a bunch of myopic elected officials, no foresight, just constantly on a powertrip, while the people suffer for their inactions.
See below communication from Dec 2016.
Quote
Dear CI Government,
It’s only a matter of time before the big market crash happens and everyone will have to start from scratch again.
Soon we will realize those paper financial products that our pension are invested in is not worth the paper they are printed on.
Government is missing out on the larger problem with pensions.
I’m asking the government to explore the possibility with the pension administrators of creating a local pension product that invest primarily in hard assets like gold, silver and real estate, pensioners should have the option of investing up to 50% of their pension in these products, the objective of the products should be to maximize the longterm capital preservation.
We need some mechanism in place to protect pensioners against cyclical events or at a minimum minimize any potential loses, there has to be hedge against what is presently offered by the pension administrators, these folks get a free pass with our money.
I’m 37 years old and I won’t have enough pension funding for retirement if I don’t guarantee at a minimum 3% annual return on what I have saved now.
The taught is scary of one market event occurring and wiping out all of my gains and I’d have to start all over, it’s in government’s interest to address this threat now or in the future it will have to deal with it through our already overburdened social welfare system.
Remember real wealth isn’t stored in financial paper products.
Unqoute
Ah election time coming with the promise of a better pension
10% is plenty as long as the plan is a good one. The current plans are terrible because the law creating them is terrible. Just pick some big boys like Fidelity or Vanguard. “Investing” locally is the LAST place pension money should go.
The irony, of course, is that the big boys would probably just invest a good portion back into a Cayman Islands hedge fund!
Sure, but you realize the money would not actually be here. It would inject some fees into the government and law firms though..
It is interesting that Premier Alden McLaughlin, would now suddenly publicly declare that he is in favour of abolishing the existing private sector pension scheme and replace it with a Public Sector operated and administered pension scheme or system. Having options should the preferred option for all citizens in a free market economy not a mandate from CIG or solely a government solution.
His reason is that the current system it is not “fit for purpose” and is not working. Have we done enough to comply with laws in existence or introduced amendments that would assist? If the current system is not fit for purpose, why hasn’t he and his party tried to address the issues which are causing the existing pension system not to work, for the past 20 years as a MLA, Minister responsible for Labour & Pensions and two term Premier of the Cayman Islands?
As the Premier the Minister responsible for Private Sector pensions, WHY doesn’t he do something or seek to make it “fit for purpose”?
Key questions to that must be answered before CIG embark on the politically expedient changes that are clearly being contemplated:
1. Has CIG appointed a functional National Pensions Board?
2. Has the Minister provided the Dept. of Labour and Pensions with the policy support, operational and administrative resources, legal support, Investment Regulations revisions, and IT systems to be able to property enforce the National Pensions Law and Regulations?
I accept the Government and the Opposition are both dealing with concerns from constituents which has resulted in the collective bashing of private sector pension plan schemes which seems convenient considering the pending general elections in 2021.
I fully acknowledge that we are living in unprecedented times and our country is dealing with heightened anxiety and thousands of concerned citizens. However, now is a time for mature leadership, thorough research, sustainable planning and solutions which address short to long term issues. If CIG can pass a Law which will potentially cause hundreds of millions of dollars to be withdrawn from the total AUM of approximately $1.2b What would they have used if those visionary pension funds were not available at this time?
Also, they mention the good investment performance of the Public Sector Pension Plan (PSPB). However, the reality is the Premier and others conveniently forget to recognize that this is due to the PSPB having vastly more flexible Investment Guidelines than the private sector plans, and also the true costs of administering the PSPB are not properly allocated or recognized, and some of those costs are partially subsidized in the cost of the public service staff costs.
This matter requires a proper national discussion, research, a public awareness campaign highlighting the Pros vs Cons before any decision is made at the policy levels and voted on in the LA. We cannot afford the usual narcissistic delusions of grandeur that drive policies that has produced a substandard public education system and failure to develop, train and retool our people over the past 30-40 years for a global economy and change. Multi-generational Caymanians feel and live as secondary citizens in Cayman because of personality driven politics and a failure to properly prepare, plan and execute what is best for the majority. That style of politics and management must change for Cayman’s to thrive in the short to long term future.
As a country we do not need knee jerk or politically expedient solutions. Every citizen needs its MLA’s and elected government to demonstrate reasoned logic based on credible data and address the practical realities of the situation before we make any decision that could potentially plunge us over the financial cliff.
I do not trust CIG to manage my pension funds and it is only fair that all persons are given the choice to make decisions that impact their future. The reckless spending, annual waste of funds, pursuit of vanity projects and lack of respect demonstrated for the public is my justification. CIG ignore the public on key policy issues, major capital works projects and the lack of transparency makes me uncomfortable with this or any future government playing with my pension funds and my future.
I would rather bet on myself given the track record of current leadership or any future elected government as is my right. If we venture down this slippery slope where CIG is in total control of free market economy and introduce hardline changes that remove our choices it is fair to conclude that Cayman’s tax neutral system will be compromised. As a consequence, this will accelerate the introduction of a direct form of taxation that will negatively impact the overall economy and GDP. Cayman’s current system and role of being a tax neutral jurisdiction is what separates our country from our regional neighbors and other offshore financial services competitors.
It is important to proceed with caution. Let us start with a rational, respectful and mature national discussion is my request and the right of all citizens.
Best regards
Johann Moxam
Wow you are an expert on everything. Must be nice.
@5.39pm Mr. Moxam has stated his opinion based on facts while asking questions that make sense. Using his name unlike you so why are you so bitter?Cayman needs more intelligent people in front line politics like him and persons with leadership qualities to move the country forward.
Maybe he should have focused on pensions over the last 10 years rather than road schemes designed to benefit rich landowners.
And certain MLA’s
And wasting $9M on that stupid dock project, which shows how not to conduct a large project.
“The government pension scheme has found a way to make it work.”
The government pension scheme is underfunded.
oh, good…thought it was just me left scratching my head over that comment. Of course the government scheme “works” when you don’t have to worry about how to pay for the damn thing, other than relying on taxing my kids, and their kids, and their kids, etc. Of course the private sector could do better for employees if they had the ability to operate in a like manner. Yet another example of how government encourages people to avoid taking responsibility for themselves
What the premier meant to say is ‘the public service pension plan gets better returns on the money that goes into it than the private sector ones’. In other words, it works. (By all reports.) While half of them have guaranteed pensions the others are like the private sector in that they get back what they put in with interest. The difference is that unlike the private plans the public plan reportedly makes better results annually, so ‘it works’.
(And the public servants on guaranteed pension pay into the fund as well, as CIG is attempting to defray those future costs with current gains.)
So get off your misinformed high horse carefully before you hurt yourself.
Funny all of the civil servants I know (and I know a few) tell me that the reason they are paid so poorly (and that’s a laugh) is because their pension is a non-contributory scheme!
Clearly they are pulling your leg. I guess that’s why they are funny civil servants.
The first thing that should be done is raise the retirement age, none of us are good to be sent to pasture in our 60’s. Go to 70 or even 75. And guarantee free health care for anyone over 70 that has permanently lived here for 30+ years consecutively (or a similar number). And perhaps look at having the pensions reinvested solely in Cayman, they could create a property fund and they’re sole remit is to buy and lease back all properties that are permanently resided in by the same pension contributors – a self fulfilling prophecy. There are ways to fix this and to stop those individuals that make fortunes out of these pension schemes from continuing to fleece us…..and once we fix this, how about the banking cartel…
Please don’t invest any of my pension money in Cayman companies. I want a diversified portfolio in companies with proper governance and reporting.
Yes, amen! How about nicely asking them to return half the profits they have made over the last 20 years or we will expect that the next government to run on a platform of clawing back the plunder from these pension pirates. Also can they be required to give full disclosure as to who exactly runs these hedge funds they invest in… I bet you’ll find another Carepay type situation where these trustees investing with themselvese or kin.
Pension Pirates? Allow me to educate you – pension plans are funds. This means that there is no single owner or company getting rich at the expense of members. Any gains the fund makes are to the benefit of each member, likewise any losses incurred impact everyone.
As to what the plans invest in, this is STRICTLY mandated by the government. The same government who ignored the suggestions from a group of highly educated pension administrators who begged for an ease of restrictions to allow the funds the opportunity to invest in more profitable investments.
The pension plan providers have worked incredibly hard to build funds that can survive the market lows, your investment is their sole focus.
Before you or anyone else starts slinging mud at them perhaps you should first try to educate yourself.
I notice how you side stepped the issue of the plans taking their fees before they do any investing. So the administrators get their money no matter how poorly they do at investing!
Everyone knows the law is too restrictive, but there is zero evidence the providers a worked incredibly hard to do anything other than collect their fees.
The worst thing you can do is have your pension invested in such a small market, please learn some economics before screwing us all. Is he suggesting that the Government should pay 12% of everyone’s salaries into a pension plan that has little oversight and where there is no proof that the funds are actually being paid in? Is that what makes it successful? I’d rather invest in my own future thanks, give us the option to invest anywhere not just through a local plan provider.
Thats my concern. Theyre going to increase our required percentage so that we lose even more of our long term savings while simultaneously reducing our disposable income that will no longer cover current nor near future inflation costs.
What out there is actually run by govt that works? I used to be civil service and certainly did not see any performance difference on my public pension investment than I’m seeing now in my private one.
Doubt anyone is listening to Alden now really. Lost all respect for him and take his findings with a pinch of salt. He blew it!
Please don’t invest any of my pension money in Cayman companies. I want a diversified portfolio in companies with proper governance and reporting.
Bullshit, he has had 20 years to enact change.
Alden proved how fast his government and legislative drafts people can work.
Go ahead show the people what you stand for and make the changes covid speed. Force it all up in the PSPB until the next govt can decide what to do but don’t try to buy them time and distract.
Do it right now if you are. For the people.
You. Have your. Yes men so no excuse