New pension raid justified by poor performance
(CNS): A proposal to allow people to use their pensions to pay down mortgages or for a deposit to buy their first property is justified because of the poor performance of private pension funds that non-government workers are forced to pay into each month, Chris Saunders MP said in parliament last Friday. Despite some reservations, the Cayman Islands Government backed what could be another raid on the funds.
As Saunders presented a private member’s motion to broaden access to pension cash for private sector workers, he detailed the poor performance of many funds that are falling woefully behind inflation. Although he had previously taken the position that allowing people to raid their pensions was setting Cayman up for serious trouble down the line, he said he had now changed his mind.
Saunders said that the value of property in the Cayman Islands is such that people would be better off making sure their home is paid for before retirement than hoping there would be enough money in their pensions when they retire. Taking the money now and paying off a mortgage or reducing payments would give them more security than the current inadequate and failing system.
“When the next generation goes to retire, what will their pension look like?” he said. “There is no greater investment that a person can make than in their own home and build up equity.”
He said Cayman’s real estate value had increased significantly over the last 10 to 15 years compared to the stock market in the United States, where pension managers are investing. Saunders said they were asking people to pay into pensions that are losing 10% or 12% while they are paying 10% interest on their mortgage.
“That makes no sense,” he said. The motion recognises the situation people are in, and by giving them access to a poorly performing pension, they can make their money work for them now when they need it to pay down their mortgages, he explained.
Premier Wayne Panton agreed with Saunders’ view that returns on pensions are currently poor, but he said they could improve. Nevertheless, he agreed that the system needs to be reformed and noted that the National Pensions Board was working on proposals to improve the system.
He explained that the members had agreed to form a select committee to enable the government to take a much closer look at the system and hear from stakeholders on both sides, paving the way not just for the changes called for in the motion but for wider reform.
After Saunders negotiated a number of amendments to his original motion, reducing some of the amounts slightly and removing a clause calling for people to be able to fund education with their pensions, the government accepted the proposal, and it passed through parliament unanimously.
If the motion becomes law, it will allow each person paying into a mandatory pension scheme to take out up to CI$50,000 to apply for a mortgage or land loan or up to CI$100,000 to pay off a mortgage in full. Couples can apply their individual withdrawals to the same property, which means that they could pay off mortgages up to $200,000 or take up to CI$100,000 for a deposit.
Posting on his social media platforms following the debate, Saunders said the goal now was to get the changes to the National Pensions Act drafted as quickly as possible.
“I recognize that this is not the ultimate solution but it’s a step in the right direction,” he said. “Doing nothing wasn’t an option. Parliament will be establishing a select committee to review the impact of the above as well as make recommendations to ensure the adequacy and viability of the pension funds registered in the Cayman Islands.”
But all of that may still take some time. The current rules around withdrawing from a pension remain in place, and only Caymanian first-time buyers can take $35,000 from their pension to buy a home or land. They can also withdraw the same amount if it’s enough to pay off a mortgage in full, but there is currently no provision to take money to pay down a home loan in part.
Saxon, the agents for Silver Thatch Pensions, sent out an email to its members Monday, pointing out that the proposal to amend section 52(a) of the National Pensions Act is not yet law.
“The approval of the motion is just the initial step in a comprehensive process that includes drafting a bill, Cabinet approval, governor’s approval, publication in the official Gazette, and the issuance of a commencement order,” Silver Thatch officials said. “Until all these steps are completed, the current law and requirements for property withdrawal remain in effect.”
As he wrapped up his debate, Saunders said that politicians had an obligation to put the right systems in place to enable the people of the country to do well.
Watch the proceedings on CIGTV below:
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I think this is a great idea. no return in pensions. I’d rather be morgage free when I retire.
Nothing is being said about increasing the annual $12,900 retirees are given. This needs to be increased. Let’s hope funds can be taken out to do home improvement if one does not have a mortgage. We all need to keep our properties well maintained.
I would like to compare the performance of the PSPP to the plan that MP Saunders chose to compare to in his speech last Friday. The one year return for the PSPP for 2021 was 13.1%, yet the return for the 2060 fund was 20.38%, the 2050 fund was 18.93% and the return on the 2040 fund was 15.2%. Let’s go back to 2017, the performance of the PSPP was 18.5%, yet the return of the 2060 fund was 22.15%, the 2050 fund was 19.68%. You can make numbers say whatever you want but using 4 consecutive months performance where the markets overall did not perform is unfair. (7 interest rate adjustments in 2022 alone). What is being overlooked is the Investment Regulations that are applicable to private pension plans and that the Administrators have been lobbying to change since the Mercer Report of 2007. For example, why should an Administrator have to buy all of the stocks making up the MSCI World Index (over 2500 stocks) when simply by changing the wording of the Investment Regulations they would be able to buy the Index itself. Investment management fees for this equity portfolio is only about 4 bps. There was a DRAFT Consultation paper done in 2016 with recommendations to change the Investment Regulations. Nothing has been done since 1998. Members need to understand the restrictions these Regulations place on the Administrator. Pensions are longer term investments.
CNS, love the picture that accompanies the article!
Your pension fund money was, is and always will be used to support an army of the administrators who are being paid regardless of the Pension Fund performance, leaving your penniless in the worst case. Only fools don’t understand the scheme.
Tell me you don’t understand markets without telling me you don’t understand markets
This is total Justice if this goes through. I’ve been saying it for years that those fat cat owners of those Cayman pensions are the biggest middleman con job on island. Zero value added with their MER of 1.5% and with index ETFs that cost only $9 one time purchase these Cayman pensions are royally milking hard working Caymanians retirement savings dry not to mention the grossly underperformance of these “managed” pension funds. It’s more like “milked” funds than “managed” funds.
Very wise decision to do another pension fund withdrawal for expats and Caymanians from these white collar con jobs!!!
Overall this is very great news!
As Ol’ Dirty B song goes “hey hey hey baby I got ya money don’t worry say hey”
….and only Caymanian first-time buyers…..
This article implies anyone can raid their pension whereas the circular I saw said only “Caymanians” Which is it? (Government already stole my private pension in 2016).
It also states new mortgage or pay off a mortgage. Unless it is revised to paydown, I don’t think there will be a pension raid.
All this is going to do is further push property values up and will cause a greater crash. Realtors in the governments ear?
It wouldn’t make sense to allow it only for a “pay down” of your mortgage because the person is still left paying the same amount each month with the same high interest rate unless there is also a refinancing even though they may hopefully pay it off quicker if there is a lump sum payment applied.
From what I saw with the last withdrawal, a lot of people are going to be before NAU at retirement. There were more purchases of televisions, furniture,cars and installation of pools and staycations that occurred rather than access to pension funds to pay bills due to loss of income due to COVID.
If you make a pay down of 50k/100k/200k and the bank allows you to restructure monthly payment over the same repayment time as the original loan your monthly payment will in fact significantly go down.
Hope the govt. includes in the Act to forgive the prepayment penalty, otherwise that would be a big chunk as well out of our pockets.
Government should not be interfering in private business.
The “private business” wouldn’t exist without government mandating it.
Really? People having been trading long before central governments existed. Try again.
You made a contract with the bank on the prepayment. You are liable for the penalty. Nice try.
The level of magical thinking is astonishing a bit like in Castle Duloc, the rundown version….
https://www.youtube.com/watch?v=YwKY3I5sLI8
https://www.youtube.com/watch?v=X81AoBcVnaA
for the original version , Duloc is a perfect plaaaaaace !!!
This might increase the property price again if good amount of people rush into buying at once.
I think this is a reckless move to raid pension funds as creating a problem down the line that the Gov will be left having to pay for…if these politicians want to allow pension raiding now they should have to fund the future liability this will be creating…but it will get them some votes now so thats what matters.
Consider waiving some of the taxes hitting lower to mid income categories such as taxes on fuel, CUC, and consider housing and food subsidies for those in need. Medium term, need to remove the current PR points system as every expat is getting PR now is many areas, thus taking the good paying jobs. Cost of housing is way too high, with these stupid low-density rules, increase to high densities- not many ppl can afford a 4,000 sft house with a 12,000 sft lot.
You don’t have a clue.
IQ Testing sorely needed here
And what have our brilliant financial minds in our CIG come up with after 30 years of crap pension investment performance? Even though they have acknowledged, (several times) the current system has NOT WORKED WELL FROM IT’S INCEPTION THREE DECADES AGO.
Some private/corporate ones work, some have never lost money….but the Chamber of Commerce pension fund has done dismally for as long as I have paid into it, except for a few short boom years, when even they could not screw it up.
Are there jsut too many funds for any of them to make money, with far too much overhead cost for the number of contributors?
To pay me $12,900 per year hardly makes sense, why not monthly payments, if you are trying to help people who have not prepared for retirement.
Why after over 20 years of contributions is my fund only able to pay 2.5 of these annual payments, where is the rest of my money????
To force people to pay back their early withdrawals used for property purchases, at the end of their working life, to have the pension administrators continue to loose money is absolutely ludicrous, to the extreme.
Easy answer which is there’s a conflict of interest being they don’t care about portfolio performance… only thing those fat cat pensions care about is collecting their MER management fees which makes them rich sucking those pensions dry with no oversight or high water mark performance… just suck suck suck like a leech hard working Caymanians and expats savings.
This is a stimulus and will do nothing to control the cost of living in Cayman.
All this is going to do cause more inflation the opposite of what is needed right now. Additionally it will only further increase property value which are already over priced.
Cut duties and taxes on essentials.
Please say it louder for the MPs!! If they really want to help, cut duty rates.
This will increase cost of living. And cause bigger issues down the road when people have ZERO income in retirement.
Not all property in Cayman is overpriced. Some of it, not on the beach feeding-frenzy zones, really struggles where comps have been static or slow for years.
The only thing I agree on is that the pension providers here are absolutely rubbish. After one of the biggest bull markets in history, my provider was still capable of making a loss.
The pension raids on the other hand are just another short-sighted, hair-brained scheme by a clueless government. They have the tools to ease our cost of living but instead take the cop out. Useless.
He is looking at it all wrong.
Instead of raising the pension, why not try and fix the pension scheme? A nation Fund has been floated for a while and using the pension money to seed this fund will pay dividends for a life time. Use this money to give reasonable loans for new projects, fund long term government projects like the Airport, Sea Port, Roads et. They interest paid back is virtually guaranteed by Government. That is a win win!
Other benefits include: A fixed loan rate, Fixed rate of return, access to a lot of money for gov projects protection from outside events.
Think outside the box Chris.
I would never allow my hard earned pension to go anywhere near the corrupt banana republic government programs.
Look what happened to the last nation fund..
Let’s think inside the box and NOT fund failing projects im a third world timeloop.
Our MPs genuinely don’t grasp that the Fed controls prime. You want them to count on their fingers past 10?
At least Saunders is young enough that he should still be here in 30 years or less to witness the problem he will have helped to cause. I will likely have passed on by then. So those with survival issues that remain please remember whose house to visit.
Pensions are for 20, 30 40 years in the future. Politicians always plan towards the next election, possibly the one after, a 4-6 year horizon. One thing is true the world over; politicians can never take their eye off a pension pot. Breaking into it for short term gain equals votes in the near term.
The pension scheme is not a retirement plan. It’s barely a living income supplement, even if/when fully funded and metered-out beyond retirement.
Can you say mortgage prepayment penalty or fee. The Banksters will love it 🤪🤪🤪
Not all banks charge a prepayment fee, always check that!
Oh dear! The members are “meeting to form a select committee” that is scary, unless members of the private sector who have been managing huge pension funds in their respective offices for decades with very good returns will also be invited to assist them. That means meeting with the best and not just someone who will tell them nonsense just to benefit their own business by charging outrageously fees, leaving the pensioner with very low returns. While interest rates on savings remain low there are also pensions funds that are doing well, however the administrators need to do the research and move investors funds around in a timely manner.
Most mortgage prepayments fees are only 3 months worth of interest; that is sure better to pay than another 20 yrs worth of interest.
I hope it is included in the Act to forgive the prepayment penalty, otherwise that would be a big chunk as well out of our pockets.
Sign me up!
I’m nearing 30. Since Jan ’22 I put $7,600 in my pension, and got back my statement today that said my earnings were (NEGATIVE) -$3,990 after losses and fees.
Fk it, I dumping the whole thing into a mortgage to stop paying rent. That’s lost equity to me every month anyways.
You, like our sad excuses for representatives, really don’t understand the long game involved here.
One of the major mistakes we made was to allow pension funds to invest the funds outside the Cayman Islands. We should correct that mistake now regardless and give a period of, say, 5-10 years for all funds to be repatriated here and invested locally, and please don’t give us there are no local safe investments.
You really think that? SAD,
the pension companies should just buy CUC and take Fortis out of the equation
Why, because the government has a proven track record of operating business? Pull head from you know where
they don’t need to run it – just sit as a shareholder and incentivise the current c-suite
Fortis would demand a price so high that one would not want to buy CUC.
Lol, you will lose more than your shirt.
Don’t keep all of your eggs in one basket, even if it’s your favorite one.
at these inflated property prices? good luck 😞
why can’t the private sector pension fund be run as effectively as the public service pension fund?
Because there is no public service pension fund.
2:04. Of really. Where do you live.? The Public Service Pension Fund has USD1b in assets and produces doubt debit returns from its investments.
It’s simply world class. Get informed.
Doubt debt is spot on.
Read the Miller Shaw report
I’m taking it, paying the mortgage off, then the money that would have gone to the mortgage is now going to be invested every month.
Modest pension, plus a significant lump sum saved. Just got to avoid premature death now!
So those with mortgages over $200K, get diddly squat? EVERYONE needs the help people. Be fair across the board.
So if “only Caymanians” can take out these lump sums won’t that mean that the “expats” pension will be adversely effected? Perhaps the hard working Filipino, Jamaican, Honduran might want some of their money to also build a house back home. Considering the cost of land here to what they will pay in their country they would not need to take out as much. Why should their funds remain to keep caymanians’ buoyant? Doesn’t seem fair!
Well, dear heart – as you are in the Cayman Islands – shouldn’t Caymanians get looked after as a matter of priority in their own country?
FYI I was born and raised here but I still think this practice of omitting the same expats who clean your houses, take care of your children , cut your grass etc might need a payout as well. Finally, I do not agree with anyone depleting their retirement funds but if Chris Saunders government and all of you think it is the way to go then by all means knock yourselves out. Good luck.
Exactly. I don’t think many people will be withdrawing from their pension as
1) who really wants to take out a 1st mortgage when the interest rate is this high? or
2) how many people mortgage is less than 100k (single) or 200k (couple)?
Hope they change to allow as long as it is paid against any mortgage. The withdrawal simply needs to be paid directly from the pension company to a verified mortgage account in the person’s name.
You are correct. The last time the fund was raided I understand that the funds were spent on all kinds of adventures, trips, lavish weddingd, honeymoons, leisure boats, fast cars etc. that didn’t make a whole lot of sense.
What is Government going to do in regards to helping the Civil Servants? A lot of them are struggling to pay their high interest rates on mortgages, struggling with the high cost of food, gas, CUC, etc.
The little raise of pay that was given to Civil Servants does not help at all!
Maybe time for the Civil Servants to go on strike!!
Go for it, no one would notice.
Civil Servants are Cayman’s form of welfare. As long as you can show up a couple of times a week (never needs to be on time) and not obviously be on drugs or committing crimes while at work, it’s a salary and a pension.
11:49 I think you got meant the private sector. the civil service who described is extinct. wake up!
Ah, the Leeroy Jenkins! strategy.
…at least I still have chicken.
Wait. Did the pension rules not change a few years ago due to people in the civil service wthdrawing it immediately after leaving their posts because it was damaging the entire fund?
If we are going to break the fund, they should go ahead and allow anyone to withdraw 50% for any reason.
Maybe add solar, add insulation, upgrade HVAC, buy energy efficient appliances, buy an energy efficient car, et, etc
Who is going to police it? Who is going to pay for the long term repercussions?
Look at this scheme as the live for today, the future means nothing.
Quite similar to the beachfront developments and filled in swamps residential developments.
CUC shares might be a better option
like the brilliant move when people bought brand new cars with the pension withdrawl during COVID?
Raiding mine to pay off the mortgage I was able get as a result of the first raid.
#covidforthewin
Anonymous at 6:16 am all you need now is a 60 knots hurricane and you can go ahead and wipe out your pension and live happily ever after!
Smart people like me have home insurance.
what property did you buy two years ago for around 100/200k? do those properties exist?
Mortgage payment or pensions saving? This is not an either/or decision.
Pay the mortgage off, great. But have no income in retirement, not so great. How many people will want to sell their home when they get to retirement to have money to live on? Will most people simply to to the government and seek financial support?
Allowing a shed load of people to purchase a home or pay off the mortgage is great but possibly only in the short term. I would expect the housing market to become super heated for a couple of years with even more increases in the cost of housing which would result in the same position of first time buyers not being able to get on the property ladder and those who have paid off mortgages looking to step up and take on more mortgage debt.
The correct answer (in my opinion) is do a root and branch look at pension provision in Cayman. Design a system that is fit for purpose.
I seem to recall that there used to be only a limited number of options for investments set out in the National Pensions Law, not only does this restrict possible returns but increases the amount of risk members are carrying.
Sort out the draw down process of pensions in payment.
Should there be a government old age pension? If so how is it funded?
Once you have a workable system then the answer to the question is both mortgage repayments and pension contributions.
Where are all the funds “collected” for Civil Service pensions invested?
If you take a look on the PSPB website they have annual reports that provide that information.
Leave our pensions fund alone. Una can’t manage the private sector ones it sounds like.
Well government certainly isn’t handling yours. Read the Miller Shaw report.
hi Richard Moody that’s when the same representative is going to introduce the reverse mortgage. remember that some months ago?
any comment Mrs governor??
10:06, Why should Mrs Governor comment? Are we not masters in our own house?
Time for Caymanians to put on their big boys pants and if they cannot do that then we should have direct rule.
wow…talk about total bankruptcy in finding ways to tackle cost of living crisis ….. zzzzz
raid pensions funds…!
beats actually coming up macroeconomic government plans and proposals….
who is surprised by no-plan-pact?
free solution….if pension funds don’t make targets….pension providers don’t get their fees
our MLA’s are great…..in the space of two days they have demonstrated total lack of understanding in mortgage rates and pension liability…..zzzzzz
welcome to wonderland
fool…what happens when/if property crashes?
and so people buy a home and then retire….how will they pay for everything with hardly any pension?
or if they sell where do they go?
I’ll let the door hit me on the way out!
Kinky.
I see a lot of refinancing in the near future!!
So do the banks, they’re already locking they lips
if that was the case we wouldnt have to implement laws to force you out! stop with all the Cap! people come here and scrape tooth and nail not to leave. You fail to realize Cayman was here long ago, when we only stockpiled money instead of entitled expats. You can go your money will remain.
Great idea. These pension plans are a scam.
Just let me invest my own money.
You won’t, you will spend it.
Also don’t you see they are planning to make a national pension. Pulled directly from your pay and most likely like everywhere they will tap your national pension and the country will have an a unfunded liability.
I already have a IKBR account that I invest 5% of my earnings into. So, yes, I will.
If that is in your own name and you own US companies you could be liable for US estate taxes of 40% if you pass.
another unfunded pension liability (on top of the one they already have for government pension – source: Miller Shaw report).
So why aren’t Public servants allowed to withdraw?
Now if the geniuses would stop giving all their money to the churches, perhaps they could afford to pay their mortgages.
What about expats? c’mon
We are being robbed. The pension funds are set up so the financial managers of each fund earns more than we will ever earn.
Give us our money and let us decide our future.
The pension funds are truly not performing. I would be able to better invest my pension money and achieve better returns than what is being provided by the people that currently manage the money.
Even the most educated and seasoned of investors cannot obtain consistent excess returns. You may make some wins but you will mean revert like everyone else. What makes you believe you can do better, a YouTube guru ?
An average individual investing this money on their own behalf into some index funds would actually more than likely outperform any of these pension funds.
To explain – the individual’s return doesn’t have to be dragged down by the operating costs of the pension fund administrators – rent, salaries, utilities, marketing, office parties, bonuses for executives, etc all eat away at the investment returns that eventually make their way to the investors.
The pension funds largely invest in passive funds and indexes themselves – it would be great if the investors could skip them as a middleman and do it all themselves and in this way, retain all of the returns.
How would you govern this? For every investor in index funds in your scenario they will be people who invest in penny stocks and forex which the net result would be people blowing up their accounts.
Not really true. Just buy SPY and you will beat them all every year. Your plan options are truly terrible.
Is a portfolio only invested in spy appropriate for a person nearing retirement? Depending on the condition of most at that age it is not. Try again amateur.
Spy was down 20% year to date last year. How many people with their finger on the button would sell and how many would by more.?
Hire a professional!
All caught back now. Want to compare with the actual Cayman funds?
The volatility of spy is not appropriate for all investors.
Keep up with your simplistic view
What was the average pension for a 30+ down?
I bet you not 20%.
Oh, did you watch a YouTube video and missed the part of standard deviation?
For many, just keeping the money in a savings account would have spared them HUGE losses over the years. Pension funds dwindled to nothing after extortionate fees.
Does this apply to Caymanians only, or all private sector pension plan members?
Caymanians only. The usual devisive crap.
Ticking time bomb.
There’ll be a generation of pensionless Caymanians relying on the NAU
sorry but there already is! better they own their own homes and apartments that will all be worth something in future.
Only they will have to sell later to be able to live
Breaking the system for wotes.
#caymankind
Just scrap the pension plans altogether and give people their money to self direct. Nobody is going to be able to live on the govt mandated monthly annuity caps anyway.
What about the public service pension law? Why not let public servants pay down their mortgage ffs?!
They’d have to fund it first.
Civil servants dont pay pension, the Government pays it for them, the money isnt theirs until they retire!
Incorrect. By law and practice the civil servant’s half of their pension is deducted from their pay.
Lie
You just failed your law and practice papers on this topic.