Cayman Islands Establishes Comprehensive Pension System
Estrin, Alexander, Lennox, Corrinne, Social Security Bulletin
The Cayman Islands-a Caribbean dependent territory of the United Kingdom-are a thriving offshore financial center that has no direct taxation; 28,000 foreign companies do business with the 600 registered banks and trust companies, and banking assets exceed $500 billion. Tourism is also a mainstay, accounting for about 70 percent of the gross domestic product and 75 percent of foreign currency earnings. As a result of these business activities, the gross domestic product per capita in the Cayman Islands is the highest in the Caribbean, approaching that of the United States. However, the Caymans have no social security system.
National Pensions Law
In July 1996, the Cayman Islands Legislative Assembly passed "The National Pensions Law, 1996," which became effective on July 1, 1997. The law establishes a national system based on mandatory private/occupational pensions and provides for the establishment of defined contribution or defined benefit pension plans.1 This provides the first comprehensive protection for earnings lost due to old age or disability. (The following applies to both defined contribution and defined benefit pension plans.)
Under this law, every employer in the Cayman Islands shall provide a pension plan or make contributions to a plan for all its employees aged 18-60. Self-employed persons are also required to be members of approved plans. The legislation covers both full- and part-time employees. Pension plans are established and maintained expressly for the benefit of Cayman Island employees; noncitizens and domestic workers in private homes are excluded from pension coverage.2
A National Pension Board and an Office of the Superintendent of Pensions are established to oversee the administration of the new plans. The minimum annual pension is to be equivalent to 1.5 percent of an employee's pensionable earnings for each year of participation, subject to a maximum of 40 years. Normal retirement is at age 61, although pension plans may specify later retirement dates. Both employees and employers must contribute 5 percent of the employee's earnings to the plan. Participants who are aged 45 or older, however, may elect to contribute a greater amount. The National Pensions Law provides for extensive, orderly administration, accounting, and record keeping, and, among other investment information guidelines, directs that a statement of benefits be sent yearly to each participant in the plan.
The draft3 regulations specifically acknowledge that financial investment needs of groups vary according to the age of the employees. They, therefore, direct that the administrator, in selecting plan investments, must take into account the average age of its members.
In addition to retirement benefits, Cayman Island pension plans may provide benefits arising from additional voluntary contributions, death, or disability benefits. Moreover, the law stipulates that greater benefits be paid to a member with reduced life expectancy because of his/her disability. Members may also elect an early retirement pension if they are within 10 years of retirement age and meet additional requirements.
The National Pensions Law expressly prohibits sex discrimination regarding eligibility for, or amount of, plan benefits or provision of ancillary benefits.
Plan members (employees) and former members (exemployees) may vote to establish a pension plan Advisory Committee (of which present and former employees comprise sole membership). These committees are empowered to monitor and make recommendations concerning plan administration, and to promote awareness and understanding about the plan to employees and all persons receiving benefits.
On March 12, 1997, a few months before the National Pensions Law went into effect, two of the three draft sets of regulations intended to implement the legislation were released. …