The Cayman Islands ('Cayman') the National Pension (Amendment) Law 2016 ('Amended Law') will come into force on 31 December 2016, although key changes will come into effect in the first three months of 2017, to allow preparation of the necessary regulations. The related Normal Age of Pension Entitlement Option Order ('NAPEO') will come into effect as of 1 January 2017.
Those who work for the Cayman government contribute to the Public Service Pension Fund, but under the National Pensions Law (2012 Revision) ('Old Law') all other employers and employees must contribute to a private pension scheme run by a pension provider regulated by the Cayman Islands Monetary Authority. NAPEO and the Amended Law affect pension plans established and maintained for the benefit of employees in Cayman ('Person').
Pension Entitlement- The Amended Law replaces the expression 'normal retirement age' (currently 60 years of age) with 'normal age of pension entitlement' ('Entitlement Age') (65 years of age). The early pension entitlement age ('Early Entitlement Age') is set at ten years younger, 55 (up from 50 years of age).
NAPEO- All those aged 47 or younger in 2017 will fall within the new Entitlement Age and Early Entitlement Age above. However, the NAPEO provides that a Person aged 48 or over in 2017 can choose to retain 60 as their Entitlement Age, and opt for an Early Entitlement Age of 50 years old.
Contribution limits- The Amended Law increases the amount of income on which pension contributions (of 5 % each by employer and employee) must be paid (the year's maximum pensionable earnings) from CI$60,000 to CI$87,000. Neither the employee or employer are required to pay pension contributions on income above that amount. Although there is no statutory requirement to make them, both employer and employee are still free to pay contributions on earnings above this amount.
February 2017- Penalties
The Amended Law introduces new penalties, including imprisonment, and increases the amount of fines. For example, the penalty under the Old Law for an employer who does not enroll an employee in a registered pension plan was CI$5,000 and CI$500 per day, whereas under the Amended Law the fine has increased to CI$10,000, or a term of imprisonment of a year or both. Regulations will need to be put in place for many of these penalties and so the relevant provisions will not come into force in February 2017 and some will be the subject of a later Order.
March 2017- Employees
The Amended Law alters the definition of 'employee' such that Caymanians ' under twenty-three years of age and pursuing full time education' are not required to pay contributions to a registered pension plan, and nor are their employers.
December 2017 - Transfers
The Amended Law allows transfers to be made to a pension plan, pension entitlement savings arrangement or life annuity outside Cayman where the Person's employment has been terminated, he or she no longer resides Cayman and he or she has not made contributions to the plan for two years or more. This section will come into force on 31 December 2017.
December 2019 - Refunds
Under the Amended Law the changes relating to refunds will take effect on 31 December 2019. Under the changes a refund will only be able to be paid:
- on application by the plan's administrator, who must show
o that the plan is regulated and allows the refund, and
o the Person has reached Entitlement Age, and
- provides evidence to the satisfaction of the Director of Labour and Pensions that the Person cannot transfer his or her pension benefits to another pension plan, pension entitlement savings arrangement or life annuity, and
- the Director of Labour and Pensions approves.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.