Needs more information about pension

What happens if I pass away before I exhausted my pension funds? How much of the remainder will go to my husband or children, and will this be paid out in a lump sum or monthly? Also, as the pension pay-out per annum will not suffice for people to survive in Cayman, why are the mandatory contributions (especially those from employers) not higher? Finally, how much fees are the fund administrators in generally being paid and are they still entitled to receive the full annual fees even if they operate the fund at a loss?

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Auntie’s answer: You clearly have put a lot of thought into pension issues, and I hope your questions will help more people. For the answers, I approached the Department of Labour and Pensions (DLP) that, over the last year, has many times provide requested information quickly and clearly (see Ask Auntie 2016 Awards).

I’ll deal with your queries one subject at a time. The DLP official explained that if a member of a pension plan dies before taking out all of his or her funds, the balance would be divided between the surviving spouse and any dependant children. The money would be paid out to the spouse annually and it would also be possible to receive a lump sum in relation to the maintenance and care of the children.

Now as to mandatory contributions, the official first pointed out that the National Pensions Law is a relative newcomer, having been enacted in 1998, fewer than 20 years ago. “In order to build sufficient money for retirement, people need to save for 30 to 40 years therefore additional voluntary contributions are encouraged.”

The contribution rate is not the only factor determining the amount that a person saves for his or her retirement, the representative said. “In retirement, it is generally accepted that people need 60% to 70% of their pre-retirement income. In the recent amendments to the National Pensions Law, there are some critical changes to the legislation that are necessary in order to increase each member’s pension benefit.”

Those changes include raising the normal retirement age from 60 to 65, enabling five more years of pension contributions. In addition, the annual maximum pensionable earnings was increased from $60,000 to $87,000 which requires members to save more for retirement as their income increases throughout their career. People can also pay more than the mandated contribution of 5% of their salary to their pension to match the employer’s share, but these extra payments are not required.

I know you posed a question about why higher contributions are not mandated; it seems to me that would be a difficult position for any government to take. Following on from that, I personally do not expect that many people would feel they are able to contribute more money every pay day, but if they do, the amended law allows members access to their additional voluntary contributions, prior to retirement, for specific purposes.

The DLP official also pointed out: “If not fully utilised, those additional voluntary contributions will work to provide the member with additional income at retirement.”

Now about the fees, the DLP representative explained that these would be different for each pension plan so that would be a question you would have to ask of the plan administrator, which you can do at the annual general meeting, along with any other queries you have. The introduction of AGMs is also a recent change to the National Pensions Law, and the representative said a specific commencement date of this section is still to be announced, though I know some pension funds already hold these meetings. I would also recommend approaching your pension fund administrator at any time during the year to ask those questions. These are not state secrets and you have every right to get the answers you seek.

The DLP official also explained that other changes to the law “will require the publication of investment performance as well as expense ratios to improve the transparency of the pension plan costs and to provide the public with more information so members can make informed decisions”.

It is always better to have more information, but what would certainly make everyone happier would be to know their pensions will be adequate to fund their retirement years.

The law mentioned in this column can be found on the CNS Library

Tags: Department of Labour and Pensions, Pension

Category: Ask Auntie