Pensions Amendment Bill Passed
Published 12th May 2016, 9:3am
The National Pensions (Amendment) Bill 2016, which was tabled last week in the Legislative Assembly by Minister for Employment Hon. Tara Rivers, received unanimous approval by all elected representatives that were present for the vote. This is the first time the National Pensions Law (“NPL”) has been substantively reviewed and modified since it was enacted and came into effect in 1998.
Over 50 amendments have been made to the Law, including increasing the age at which persons become entitled to access their pension (formerly known as the ‘normal retirement age’), how often members receive statements about the performance of their pensions, when non-Caymanian employees become pensionable, when pensioners can transfer their pensions to an overseas pensions plan, and when pension administrators should notify employees that their employer is in arrears.
“Given the multitude of issues which have plagued the system since inception, this is an important piece of legislation which aims to address to a large extent some of the long standing concerns such as a culture of non-compliance and a limited attention to the regulation of pension plans and plan providers,” said Minister Rivers. “Even though this is the first major review of and amendments to the National Pensions Law in roughly 20 years, this by no means represents the ‘end’ of the journey to improve the pensions regime for the benefit of pensioners, the hard working men and women of this country. Progress has certainly been made with the adoption of this Bill, but we all recognise that more work needs to be done, and the Ministry is already working on amending key supporting pension regulations which are also outdated.” Once complete, those Regulations will also be tabled in the Legislative Assembly for affirmative resolution.
In her presentation Minister Rivers explained that the key objectives of the proposed amendments to the National Pensions Law are:
• To remove the notion of a ‘normal retirement age’ and to increase the age (from 60 to 65) at which persons become entitled to access their pension, recognizing the longevity of people in today’s society and, in many instances, their willingness and ability to work longer to contribute to their own independence;
• To introduce more requirements for pension plans to educate and inform members including the requirement for annual general meetings and an increase in the availability of pension statements as well as notification from the administrator if their employer becomes delinquent;
• To introduce new and enhanced mechanisms to improve compliance with the National Pensions Law, especially the strengthening and broadening of the Department of Labour & Pensions (“DLP”) powers and the introduction of a administrative fine regime as well as a verification of compliance provision; and
• To align the National Pensions Law with the re-organisation of Labour and Pensions Services in the Cayman Islands, by including in legislation the establishment of the DLP.
Of the 50-plus changes made to the law, many of which were based on recommendations from reports produced by Mercer Human Resources Consulting in 2007 (“Mercer Report”) and the Office of the Complaints Commissioner in 2010 (“OCC Report”), the most notable include:
• Changing the definition from ‘normal retirement age’ to ‘normal age of pension entitlement’ and increasing the normal age of pension entitlement from 60 to 65. This age is simply the time when a member may access their pension benefits under the NPL. It is not the age at which employees must retire. The Law does retain the ability to access pensions earlier under certain conditions.
• Changing the eligibility of who is mandated to contribute to a pension plan. Employers will be required to pay pensions for non-Caymanian employees who have continuously worked in the Islands for more than six months instead of nine months as it currently stands. This 6 month threshold is in line with the immigration policy that temporary work permits are not normally granted for more than 6 months; thus, the change in eligibility continues to provide administrative ease for employers who are hiring truly temporary employees. Additionally, there will be new exemptions for Caymanians who are under the age of twenty-three and pursuing full time education. In an effort to decrease any potential barriers to employment for young Caymanians, employers will not be mandated to pay pension contributions for those who are pursuing full time education. Currently non-Caymanians and non-permanent residents who are employed to do housework in private residences are not pensionable. However, the Law did not contain a clear definition as to who falls into that category. In order to align the National Pensions Law with the current definition of “household domestic” in the Labour Law, the term household domestic has been incorporated into the Pensions Law which means that non-Caymanians and persons who do not have permanent residence employed in a private home as a maid or a gardener are not required to pay pensions.
• Changing the requirements for pensioners transferring their pensions overseas. Under the National Pensions Law (2012 Revision), the only requirement for a transfer is the termination of employment. The new Law mandates that the member’s employment must be terminated, there must be no contributions to his/her pension account for two years and the member must be absent from the Islands for two years before he/she can transfer pension funds overseas. This change was made to ensure that persons who leave the Islands can transfer their funds to another pensions related fund, while making provisions for those who leave but may return after a short period of time (e.g. at the end of their ‘Roll Over’ period) to resume working in the country.
• Changing the requirements for refunds. Under the National Pensions Law (2012 Revision), refunds are permitted once the member meets the requirements of terminated employment; no contribution for two years; and ceasing to be resident for 6 months. The new Law allows for Cabinet to determine a date at which pension plan members will no longer be allowed to obtain a refund. Following that date (which is to be determined), refunds will only be available under two circumstances: at the administrators discretion for commuted values of less than CI$5,000 and 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. This policy shift was deemed necessary in order to minimize the possibility of persons accessing and depleting their pension benefits prior to retirement, and then subsequently becoming wards of the country later in life.
• Increasing the year’s maximum pensionable earnings from the current amount of CI$60,000 to CI$87,000. This figure represents the inflation adjusted amount recommended in the Mercer Report. It also represents the maximum amount that employees and employers are statutorily required to pay in pension contributions annually. However, there is nothing in the Law to prohibit the payment of contributions on earnings above this amount, known as Additional Voluntary Contributions.
• Increasing the flexibility of accessing Additional Voluntary Contributions (AVC). In an effort to encourage members to build additional savings in their pension plans, the amended Law allows members to access AVCs if they are needed prior to reaching the normal age of pension entitlement. Members are permitted, within defined criteria, to access their AVCs in the following four categories: housing, medical, temporary unemployment and educational needs.
• Increasing the level of fines under the NPL as well as adding new fines. The fines currently in the NPL have not been amended since its implementation in 1998. The new fines give the NPL more teeth and are another step in the process of building the culture of compliance. Some of the fines will also now include the possibility of imprisonment periods.
• Expanding the duties and functions of the pensions administrators to include providing members with semi-annual statements as opposed to only annual statements; submitting evidence of yearly administrator training to the Director of the DLP; holding annual general meetings for members which create an opportunity for members to hear directly from their pension plan administrator and key service providers about the activities of the pension plan; and publishing investment returns and expense ratios of their pension plans to ensure the general public is aware of these key performance figures of each pension plan and to enable the public to equitably compare pension plans.
• Legally requiring employers to keep proper books and comprehensive records in relation to their pensionable employees, and making those documents available for employees to obtain information. The DLP will continue to conduct inspections of employers to monitor compliance with the Law and to act accordingly..
Although the National Pensions (Amendment) Bill, 2016 has passed in the LA, for the changes to take effect the Law must first be assented to by the Governor and then Cabinet must issue an Order to bring each section into force. It is anticipated that several of the sections will come into effect together, whereas other sections will require a longer transition phase to allow for public education, and for the administrators and the DLP to amend their systems or procedures.
Minister Rivers stated, “There is much that these amendments to the NPL achieve by way of improvements to the current system. However, given the feedback received during the highly participatory and consultative legislative reform process undertaken over the past year, it is clear that there is still much to be addressed and that the refinement of the pensions regime must be a regular work in progress.” She went on to say that, “It is unfortunate that almost 20 years have elapsed since the private sector pensions legislation has been revised in earnest to address the long standing issues. Nonetheless, as promised, this Government is committed to tackling the tough issues facing the country in an attempt to do more than just talk about them. This is one major step forward in this regard.” Rivers says that an education campaign will be developed to help increase the public’s knowledge of the private sector pension regime.