(CNS Business): As the government begins the gradual implementation of its complex amendments to the pension law, officials said this week that the legislation paves the way for some members of pensions to transfer more money annually into Retirement Savings Arrangements accounts. From January there will be a minimum and maximum amount that a pensioner can make based upon their age and pension balance, the first change since 1998, which officials claim will allow for more independence for pensioners.
The current withdrawal maximum of CI$12,000 doesn’t take into account age or account balances. But the new schedule has a minimum annual withdrawal amount of CI$12,480, which will also be the maximum for smaller accounts, but the government says this will “help ensure that pension plan members have a basic pension amount that lasts for their entire retirement and that they do not use all of their pensions funds before their anticipated death”.
Tara Rivers, the minister with responsibility for private sector pensions, said the new schedule should provide relief for many retirees and help them to live more independently in their golden years.
“For those persons who have accumulated significant balances in their pensions account, this new schedule will now afford them the opportunity to make greater withdrawals to increase their quality of life as retirees; and for those who may not have accumulated sufficient funds to withdraw above the stated maximum annual threshold, the schedule now accounts for the need to adjust that figure upwards as necessary to adjust for inflation,” she added.
The schedules were develop by Canadian consultants. Amy Wolliston, Superintendent of Pensions/Deputy Director of the Department of Labour and Pensions, said they were asked to develop an appropriate schedule for the RSAs that would provide a level of income in retirement consistent with a sustainable spending and consumption rate in Cayman, the longevity risk and the probability of retirees outliving their income. She added that they also factored in consistency with the poverty line, now and in the future, as well as competitiveness with insurance annuity purchase rates.
The result, officials added, is a schedule that takes into account the demographic profile of future retirees, maturity of the RSA framework, the investment portfolio and available assets that would impact future returns, inflation, mortality and pensioner spending rates.
Breaking down the changes, officials said amounts under $5,000 are paid in full as a lump sum; amounts between $5,000 and $12,000 are paid out over 1 year; amounts between $12,000 and $24,000 are paid out in portions of $12,000 each year until funds are exhausted and when account balances increase by $12,000 the amounts paid out commence with $12,000 in year one and escalates by 2% each year until funds are exhausted, while amounts over $204,000 only interest is paid.
Under the new schedule, and based on the recommendations from the consultants the new drawdown factors for Retirement Savings Accounts will be managed by taking into consideration, the pension plan member’s age and account value.
For more information about the National Pensions (Amendment) Law 2016 or the new RSA schedule, contact the Department of Labour and Pensions on 949-8960, or email [email protected]