Surge in pension raids causes alarm

FRIDAY, OCTOBER 7: More than 120 people have this year asked to dip into their pension funds because of money and mortgage worries, Pensions Commissioner Peter Sousa revealed yesterday.

He warned that people cashing in on their pensions now could face hardship when they retire — and urged anyone considering dipping into their pension pot to explore all the options first.

Mr Sousa said that Government had last year changed the rules to allow people to access up to 20 per cent of their pension fund money to cover mortgage arrears, education expenses or uncovered health care costs.

The pensions break was extended in July to also cover rent arrears.

Mr Sousa said the Pensions Commission had dealt with 55 applications between August last year, when the new regulations came into effect, and December. Of those, 38 were approved.

In the year to date, the commission has considered 124 applications, with 98 approvals. A total of nine rental arrears applications have been approved since the category was added.

Mr Sousa added that since exemptions were granted last year, 73 (54 per cent) were in order to pay tuition fees for college or university while mortgage arrears applications totalled 34 (25 per cent).

Mr Sousa said: “The regulations are still fairly new and as we’ve found with other types of legislation, as people become more aware of them, we might expect a steady increase in applications.”

But he warned: “Every withdrawal an individual makes – and the chances of individuals replacing that money are very small – will have a significant and detrimental impact on their retirement and the amount they get then.

“We are certainly not encouraging people to tap into their pension funds, but we do recognise that people are finding themselves in difficult positions.”

He added: “People have to demonstrate that they are in serious financial need – we’re very careful and we often decline applications because they haven’t proved their hardship or supplied supporting documentation to prove it.”

Mr Sousa said that applications had come from people who had lost their jobs, seen investments sink or had lost apartment rental income.

He added: “Some people may have over-relied on rental income from apartments to support their mortgages”

Mr Sousa was speaking after OBA leaders warned that applications for early payouts from pension schemes were on the rise.

Miguel Daponte, a member of the OBA shadow economy board, said: “The level of hurt is running deep. Pension hardship withdrawals are rising as people struggle to pay for education, housing and medicines.”

The BF&M insurance firm executive added: “In the past three months, there has been a huge rise in people filling out forms about it or going to the Pensions Commission.”

He was speaking as the OBA outlined emergency measures it would take to cope with rising unemployment and economic hardship on the island.

Shadow Finance Minister Bob Richards said: “There is stress out there in mortgage markets – there are people who have bought or built houses in the anticipation they would be able to rent that property to some well-paid foreign worker with a housing allowance. There are fewer of these people around these days.

“There are a lot of mortgages under stress and that translates into assets that are under stress for banks.”

OBA leader Sen. Craig Cannonier added that the loss of foreign workers – including the announcement by CITI Fund last week that more than 100 jobs were to be relocated to North America – impacted on other businesses like shops and restaurants and the rental market.

The shadow Economy, Trade and Industry Minister said: “The loss of jobs in the international business sector has a ripple effect throughout our economy – the loss of jobs in the international sector is not isolated. All of us have a stake in it.’”

Mr Richards said an OBA Government would follow the lead of the Cayman Islands and suspend term limits for work permits to encourage international business and allow time to work out a new policy.

He added workers earning under $50,000 a year would be exempt from their slice of payroll tax, while businesses would get payroll tax exemptions on new starts.

Mr Richards said that the payment of Government bills would be speeded up to help business cash flow, while the planning process would be streamlined to encourage development.

Mr Richards said other OBA plans included freezing the size of the civil service and reducing the number of Ministries He added that the OBA would cut back on overseas trips by Government members and reduce Ministerial salaries by 10 per cent.

Mr Richards said that an OBA Government would also reserve 20 per cent of Government discretionary spending to support small, local businesses.