What are the investment options for pensions?

| 30/05/2019

Can you confirm what products in Cayman are approved to transfer pensions into? Would be good for the public to know their options, if any, and if there are no options, why has the government sat on this? People are suffering!

Ask Auntie, CNS Local Life, Caymanian status

Auntie’s answer: This question came in a comment on a CNS story last month about the possibility of paying more into pension schemes to cover the cost of health insurance. I asked the Department of Labour and Pensions (DLP) for advice.

A DLP official, in trying to cover the issue thoroughly, looked at the question in two different ways, explaining that the reader’s meaning wasn’t clear. First, the official considered that the reader was asking about what to do with pension benefits at retirement.

These funds can either be put into a retirement savings arrangement or an annuity. The former “is retained with the pension plan and the member is paid an annual benefit, which is presently set at a minimum of $12,480”, the official said. With an annuity, the pension benefit would be transferred to an insurance company that is licensed to sell annuities, and the associated terms must be approved by DLP. “In this case, the pension benefit is usually paid monthly and the amount is determined by the insurance company, based on terms of the annuity contract, which must comply with the National Pensions Law,” the DLP official explained.

In an alternative interpretation of the question, the official considered that the reader was referring to investment options available to pension plan members, which are subject to the requirements set out under the National Pensions (Pensions Fund Investments) Regulations. As a result, the administrator of the pension plan is responsible for maintaining compliance under the National Pensions Law, as well as the specific regulations concerning investments.

The regulations detail the allocation of assets including, among others, the minimum and maximum percentage investment of total market value of the fund in various vehicles and the denomination of the currency.

“Depending on the pension plan, the investments can be selected through a variety of approaches,” the official explained. “For example, some pension plan administrators will determine the investments based on the individual member’s demographics or, in other cases, the pension plan administrators may permit the member to select the investment categories. Regardless of the approach taken by the pension plan administrator, the plan must remain in compliance with the National Pensions (Pensions Fund Investment) Regulations.”

If you are interested in more specifics, it would probably be helpful for you to discuss your plan’s investments with the pension plan administrator. If you want to read about the requirements for pension investments, which are very detailed and technical, you can find the regulations, as well as the National Pensions Law, in the CNS Library.

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Category: Ask Auntie, Pension Questions

Comments (2)

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  1. Anonymous says:

    Two out of three good answers. There are no Cayman investments suitable for a pension plan.

  2. Anonymous says:

    I will comment in three different ways.

    1/ I think that it is a “maximum” withdrawal of $12,480. For some individuals, myself included, i will not be relying on these funds to fully finance my retirement, and would like access to a great amount annually as needed. As I am still working past 60, my currant “required” contributions are now “voluntary” and any amount can be accessed at any time. Consequently, at this time due to limited other investment options, I am taking the withdrawal, (as mentioned above, it is once a year, and not available monthly) and reinvesting it in the same fund as a voluntary contribution.

    Not taking this step, in 6-10 years when i do stop working, i would only be allowed immediate access to the funds contributed past 60 and the $12,480 annually. By withdrawing and reinvesting the maximum every year, by the time i do stop working, i will have access to the full amount at any time.

    2/ I think that a portion of the pension funds should be invested in The Cayman Islands. I am fairly certain, that with promise of a decent return that the people of The Cayman Islands could pay for major Infrastructure projects such as the port.

    3/ I am fairly confident that in a self directed account any sophisticated investor could out perform the “Money Managers” employed by the local pension firms and do so without the inherent fees.