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(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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