$2.65M taken from pensions
CNS): Government officials have revealed that 137 Caymanians have withdrawn a total of $2.65 million from their pensions in order to buy or build a home, purchase land or pay off mortgages under an amendment to the pensions law last year. This falls far short of the claim made backbench MLA Ellio Solomon recently that some $17 million had been injected into the economy as a result of the law, which grew from a motion filed by the former radio talk-show host in 2010. Government amended the pension law just short of a year ago to allow locals with private sector pensions to take up to $35,000 from their pension fund and invest the money in property.
Solomon now says he intends to file a similar motion calling for civil servants to withdraw cash from their Public Service Pension Fund, which may prove considerably more difficult.
The data regarding how many people in the private sector have used the facility and for what comes directly from the new Department of Labour and Pensions, which showed that 50% of the $2.65 million withdrawn by locals from private sector pensions was spent by 78 applicants on the purchase of a home, while almost one million dollars was spent on paying off 36 existing mortgages. Seventeen applicants used just under $300,000 to construct a home and a further six applicants spent $98,000 on land.
The release of the information is part of a commitment to improve the department’s systems, databases and other methodologies to ensure the timely and accurate delivery of information and technical support to its stakeholders, the department's director, Mario Ebanks, said in a release.
“Statistics such as these, dealing with withdrawals from pension plans for worthy socio-economic causes in accordance with the law, will be released regularly and at least on a quarterly basis,” Ebanks stated. “Subject to funding, the department will enhance its databases, website, and generally leverage technology in order to achieve high quantitative and qualitative outputs.”
The information comes ahead of an expected debate in the Legislative Assembly in the coming weeks on the sequel motion which Solomon plans to file that will allow civil servants to do the same thing from the public service pension. Speaking on Cayman 27 last week, the George Town MLA admitted that there may be some resistance in the higher echelons of the civil service to the motion but he believed he had wide support for it.
However, allowing public sector workers to raid their pensions may prove much more complex, given the problems government is already facing with its liability for millions and millions of dollars towards future pensions that will need to be paid out to civil servants who have yet to retire but are entitled to do so on a fixed income.
There are concerns, too, over the damage caused to a long term investment by withdrawing a significant sum mid-way through, which has not been fully explained to those that have taken up the chance of what may feel like a cash windfall twenty years away from retirement but may place those pensioners in future poverty.
Last year a number of pension firms warned that such a $35,000 withdrawal could have a devastating impact on the final funds pensioners will be faced with when they retire and the dangers that they will then become a burden to the state. Solomon argues that those trapped in rental property when they retire will have to spend a large portion of their pension on rent but if withdrawing a sum of cash before retirement will help them to buy a home, in the long run a smaller pension may not be so much of a problem.
Under the law, those who have used their pension for a home are required to pay additional contributions of 1% and if they sell the property before they retire they will need to pay back the full amount of what is being considered a loan from the scheme.
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