Most, if not all, developed countries throughout the world have some form of pension arrangement for their citizens, meaning that millions of people globally rely on these systems for financial security when they are beyond a viable working age.
You may be surprised to hear that the modern pension system in the Cayman Islands is still quite young, having only been established just over 20 years ago in 1998. Read on to learn more about the history of pensions in the Cayman Islands.
1940s – 1960s Between the 1940s to 1960s the small Cayman Islands economy was largely supported by the maritime and seafaring industry. Caymanian seamen would head out to sea on merchant ships, travelling the world and transporting cargo of various types, including fuel, crude oil, iron ore, building materials, etc. These seamen sent their earnings back home to their families in Cayman, which assisted in building homes, opening small local commerce and also creating a capital base for savings and loans operations in the Islands. 1960s – 1970s As the economy matured in the late 1960s, several multinational corporations began to come into the Islands, and with the birth of the financial industry in the early 1970s, bolstered by economic, racial and political stability, there was an increase in foreign investment and economic activity.
Several of these multinational companies, such as Barclays Bank and Cable & Wireless introduced their own pension plans, many of which were non-contributory Defined Benefit plans that these organisations offered to their employees around the world. The Cayman Islands, being a tax neutral jurisdiction, became very popular for financial services and banking during this time. Early 1980s As the economy expanded further in the early 1980s, discussion intensified about the need for a national pensions or retirement planning system, especially important in the absence of income tax or Social Security in the jurisdiction. The Government who were elected in 1984 passed the Labour Law, which had been in circulation for a short time. Next on the agenda was the topic of pensions/retirement planning. An in-house consultancy and advisory group was established which came up with a proposal for a Government-operated scheme that was titled the Cayman Islands Social Security scheme, known as ‘CISS’. 1986 This CISS proposal was introduced to the community for feedback in 1986-7, and quickly drew significant opposition from the private sector. It dissipated. 1988 After the 1988 General Elections, the CISS scheme was revised and renamed the Cayman Islands Pensions Plan (CIPP). The CIPP was no more popular than the CISS, as objectors complained about the poor record worldwide of Government/State-operated pension schemes and the propensity for these to be abused and raided by its Government sponsors. 1990 In mid-1990 a draft Discussion Bill for the CIPP, and later a Green Paper (a Bill that goes to the Legislative Assembly) was created and circulated. The Bill was eventually withdrawn from circulation and from the agenda of the upcoming Legislative Assembly meeting due to significant public opposition. 1992 In 1992, a broad-based and diverse private and public sector consultative committee comprising representatives of all industries and professional sectors in the Cayman Islands was established. This was known as the Pension Plan Advisory Committee (PPAC).
The Committee drew examples, research and expertise from all current and ongoing pension plan initiatives worldwide. Overall, the conclusion was that a pensions/retirement planning model that featured a system for the private sector that was robustly regulated by Government was the best option for the Islands.
The legislation for what became the National Pensions Law (NPL) and Regulations was drafted not long after. The legislation drew from existing frameworks and was also forward-looking. It included safeguards and features that were unique to the Cayman Islands context. Some of the principles included:
a very conservative set of investment regulations, as an introductory phase to discourage risk-taking by investment managers;
a phased-in approach followed by a low contribution rate to give the economy a chance to adjust to pensions withdrawals - by employers and employees;
a system that allowed existing pension plans to be amended to comply with the NPL; and
the requirement for actuarial assessments/reviews, to accommodate the grand-fathered Defined Benefits plans which joined under the new legislation.
1996 The legislative package was taken to the Legislative Assembly in 1996 and passed, but the effective date was not activated by the time the November 1996 General Elections took place. 1997 The Government was re-elected in 1996, and the NPL was assented to in 1997. 1998 However, due to some parliamentary and governance developments, the NPL package was subsequently suspended by the Legislative Assembly and sent to a Select Committee of the House. In that Select Committee, several changes were made to the legislation, but the NPL and a full set of Regulations were then brought into force in 1998. 2016 After nearly 20 years of no significant changes to the National Pensions Act, Government passed the National Pensions (Amendment) Act, 2016, putting into place some amendments that were deemed appropriate to ensure that employees’ lifestyles would be more comfortable in their retirement years. A few of these changes included increasing the normal age of pension entitlement to 65 and increasing the Yearly Maximum Pensionable Earnings to CI$87,000; however, to date many sections of the National Pensions (Amendment) Law, 2016 have not been implemented. 2020 At that time (in 1998) it was the understanding and intention that there would be regular reviews and finetuning of the legislation, particularly around administration and enforcement, resources, investment regulations, public education and a gradual increase in the Contribution Rate.
However, this has not been the case and has led to recent legislative actions including a Public Accounts Committee hearing in June 2020 aimed at increasing transparency of the pension system for the public.
Based on decades of experience managing pension plans in the Cayman Islands, the Chamber Pension Plan believes that having a pension system is still the best option for these Islands while also recognising the overdue need to build and improve upon the legislative package and its administration and enforcement framework.
Thank you to Mario E. Ebanks for his contributions to this article.
About the Chamber Pension Plan
The Chamber Pension Plan was established in May 1992 (six years prior to the NPL) and was the first multi-employer pension plan approved by the Regulator in the late 1990s. As Cayman’s longest-established and only not-for-profit plan, the Chamber Pension Plan’s mission is to provide the best-performing and most trusted pension plan for employees and businesses in the Cayman Islands in an efficient and cost-effective manner.