One solution to two problems

| 21/08/2012

We are at this time in our history faced with multiple economic problems but they are all solvable. Aside from the financial tribulations being experienced by our government, the majority of us in this country are faced with what I will describe as a ‘pension dilemma’. Most of us are aware of the current financial problems faced by government, so there is no need to elaborate on this issue at this point in my article.

By the term ‘pension dilemma’ I mean that our pension system is flawed in several ways.

Firstly we are forced by law to pay pensions but there is no guarantee that upon retirement we will have more than we paid in to our pensions, or even the full amount that we paid.

The second flaw in our pension system is the fact that the pension providers are themselves faced with the issue of generating a return for their clients. This means investing in overseas financial markets and in some cases having to add a second layer of money managers, thereby increasing management fees. Additionally those financial markets are very unstable with the world going from one financial crisis to the other.

The third pension problem is that those of us who are at the lower income scale will not in our lifetime accumulate enough through our pension to ever sustain ourselves later in life and many of us will become dependent on government funded social services for assistance.

So how can we find an alternative that will solve our pension dilemma and at the same time have a positive impact on our economy and be beneficial to government’s financial position?

In relation to the government’s financial position this includes substantial debt and a significant amount of interest per year.

The obvious solution for government is to do a phased 5-year disposal of all of the public authorities, including the Water Authority, the sewerage system, the Port Authority, CINICO and Cayman Airways.

The major concern in their disposal is – to whom will we sell these essential components of our infrastructure?  Certainly I would not recommend that we allow any single company or person to have this kind of control over our country. Furthermore these utilities should not be controlled by any foreign entity.

So here is an alternative that might solve all of the problems that I have set out above:

We need the pensions law amended so that it stipulates that at least 80% of the assets now held by our pension funds must be returned to Cayman and invested in specified local investment vehicles and the transfer of funds should be scheduled over the next five years.

We need the specified investment vehicles to be secure and to bring a guaranteed return on investment to our pensions and a fixed amount of management fees to all of the pension providers.

We need the pension contribution for everyone to be set at a minimum amount of $300 per month. If the salary is less than $3,000 per month then the employee should continue to pay 5% of salary and the employer make up the difference to bring it to $300.

For those who have not already put one and two together, I am suggesting that government should sell our public owned companies to our own pension fund providers.

The best way to accomplish all of the above is for government to retain 20% interest in each of these entities and to have a proportional role in their management. We all know that the private sector generally provides more efficient management than government, so this enables the private sector, in this case the pension fund appointed management systems, to have control and this thereby will improve efficiency.

I believe that our current utility company, CUC, is guaranteed a return on investment of somewhere between 10% and 15%, so these entities that will be owned by our pension funds and thereby ourselves will need the same arrangement.

There are many future benefits that will flow from what I am proposing here.

For example in five years time when the government has divested 80% of all of these assets, government will have earned enough to pay off the total public debt and have a surplus.

The civil service will have a significant reduction in employees because those employees previously working for the government-owned authorities will by that time be privately employed in the then private enterprises. This will bring the civil service and thereby government expenditure down to a manageable size.

The pension funds will have a stable and sufficient return on investment and will be in a better position to keep their management fees to a minimum.

The cost to consumers should not increase because more efficient management brings with it lower operating costs. And even if we complain about high utility costs at least we would know that in the long run our pensions will be substantially more than we contributed because we are the ultimate beneficiaries of the profit from our utilities.

This brings me back to the reason why I recommended a minimum pension amount of $300. A compound interest calculator shows that if we invested $3,600 annually for 21 years, with annual interest of 9% we would have more than $200,000 accumulated in our pension.

I don’t have to add that this will significantly reduce social services expenditure on those of us whose pensions would otherwise be insufficient to cover our living expenses in our later years.

If our pension fund has a return of 9% to 12%, we would all be in a much better financial position when retirement time comes around.

Finally, the biggest windfall of all will come in five years time, if we chose to take these companies public by having them listed on the NASDAQ or other exchange.

This public offering through a US or other international exchange will bring in substantial new investment, which can then be applied to green energy such as solar energy, wind-driven energy, the purchase of CUC, the purchase of our fuel depots (or the creation of our own), or other similar investments.

We would however need to structure any public offering so that control is maintained locally.

Admittedly, it will be almost impossible to guarantee fixed earnings for Cayman Airways and the two public attractions, but that does not mean that they cannot be made profitable by privatization and by the increased efficiency that privatization will bring.

To those critics who will say that this is not a viable solution, I say to you that this is a basic idea that can be revised, improved and amended. Our current system of sending our hard earned dollars to be lost in the US stock market is, in my opinion, much more risky than the solutions which I have outlined here.

The sale of our public authorities to any entity other than our pension funds might help government finances in a similar way, but we will then be left with the same pension dilemma and the additional scenario where the profit from our utilities might not be re-invested in Cayman.

My conclusion therefore is that a phased transfer of the assets of our pension funds back to Cayman to purchase our own infrastructure combined with a coordinated infrastructure disposal by government will go a long way to solving two of our major problems between now and the next five years.

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  1. Anonymous says:

    CNS – It might be a good idea to have a poll to see whether posters want their pensions returned to Cayman to purchase and privatise govt entities.

  2. Macro Micro says:

    This is a naive and stupid plan which has no prospect of doing anything but destroying the pensions of everyone in Cayman.

  3. Desmond Kinch says:

    Please allow me to respond to Ari Greenwood’s viewpoint posted on CNS’ web site.  Whilst these views may have superficial appeal and may seem like an “easy fix” for Cayman’s financial difficulties, the solutions suggested in Ari Greenwood’s viewpoint are no panacea.  To explain why, I will respond to several of the points raised in “One solution to two problems” stating first Ari Greenwood’s point in quotations and my response.

    “Firstly we are forced by law to pay pensions but there is no guaranteethat upon retirement we will have more than we paid in to our pensions, or even the full amount that we paid.”

    Risk is something we cannot escape.  Just as we cannot guarantee that Cayman will not be hit by another catastrophic hurricane in our lifetime is no reason to abandon the island, failure to guarantee a positive rate of return on pension contributions is no reason to abandon the defined contribution pension schemes that Cayman has adopted.  Even so-called guaranteed pensions provided by governments are not guaranteed.  Payment amounts may be reduced or recipients may be paid in depreciated currency.  From time to time, financial markets will be hit by financial hurricanes such as happened in 2007-9.  However, over long periods of time which are representative of the time horizon during which most people contribute to pensions, investment returns are likely to be positive and higher than bank deposit returns.  Indeed, the compound annual return of the multi-employer pension plan which my firm partially manages has returned 3.4% per annum net of all fees and expenses in the roughly 8 years since inception.  That period encompasses the global financial crisis and the return is significantly higher than a bank depositor would have received during the same period.

    “The second flaw in our pension system is the fact that the pension providers are themselves faced with the issue of generating a return for their clients.”

    This is not a flaw.  If a pension provider fails to generate a decent investment return for their contributors over say 5 years, then the Law is drafted so that the employees can ask their employer to switch to another pension plan.  A choice between competing pension plans allows employees to switch from an underperforming plan.  If there is a flaw, it is that contributors currently have great difficulty in comparing the investment performance of competing plans on an apples-to-apples basis.  We have made representations to the National Pensions Board and the visiting pension consultants and are hopeful that this flaw will be addressed in the revised Nation Pensions Law and Regulations.

    “The third pension problem is that those of us who are at the lower income scale will not in our lifetime accumulate enough through our pension to ever sustain ourselves later in life and many of us will become dependent on government funded social services for assistance.”

    This is true.  Pension consultants and actuaries agree that the rate of pension contributions needs to be about double the current 10% to provide enough savings for retirement if the contributor is wholly reliant on their pension in retirement.  It is politically unpalatable for a Minister to propose doubling the rate of contributions, but either something needs to be done or Caymanians need to know that they have to save privately for retirement to supplement their pension contributions if they are to retire on the terms they expect.  Fortunately, many Caymanians are fully aware of this issue and own rental properties, land or other investments like cash deposits.  As a sidebar, what is likely to burden the government in future years is skyrocketing health care costs which rise exponentially in peoples’ retirement years.  The Miller-Shaw report alluded to this and tried to quantify it.

    “The obvious solution for government is to do a phased 5-year disposal of all of the public authorities, including the Water Authority, the sewerage system, the Port Authority, CINICO and Cayman Airways.”

    Anyone who is capable of selling most of these entities to the public without their continued reliance on massive Government subsidies deserves an award for investment banker of the decade.  Based on the just released Appropriations Bill, it looks like this year’s Government subsidy of Cayman Airways will be around $23 million (the sum of outputs CAL 1, CAL 2, and EI 1).  The airline business is a terrible business in which to invest.  As Warren Buffett once quipped “Any right-minded capitalist who had seen the Wrights' contraption take to the skies in Kitty Hawk might have shot it down and saved investors 100 years of agony.”  Quite simply, he argued, airlines as a whole hadn't netted a dime since 1903. 

    In a recent report, the Auditor General stated that in the year ended 30th June 2011, CINICO paid out $29 million in health insurance claims.  Virtually all these claims were funded by Government contributions.  Based on the current Appropriations Bill, it looks like the Government will be contributing a similar amount this year.  I for one will pass on investing in Cayman Airways and CINICO.  Without massive Government subsidies, both will go bust.  Empirical evidence shows that investing in companies that are reliant on government subsidies has led to very poor investment returns.

    “We need the pensions law amended so that it stipulates that at least 80% of the assets now held by our pension funds must be returned to Cayman and invested in specified local investment vehicles and the transfer of funds should be scheduled over the next five years.”

    There are many flaws in this argument.  The most glaring one is the importance of diversification.  Is it wise to invest 80% of one’s pension in a country with a population of 55,000 people?  A significant part of a pension plan’s assets is invested in fixed income securities.  All, or virtually all, the fixed income securities issued in Cayman are issued by the Government or Government-guaranteed entities like the Cayman Development Bank.  Forcing domestic pension plans to invest in domestic debt would lead us down a dangerous path.  I am originally from Barbados which has historically been one of the soundest economies in the Caribbean.  Barbados recently had its debt rating downgraded to junk by S&P.  One of the principal causes of Barbados getting into such deep debt is that the National Insurance Scheme in Barbados which makes pension payments to retirees has become the buyer of last resort for Barbados government debt and has been influenced by the government recently to invest in such schemes as a resurrection of the failed Four Seasons project in Barbados.  History, not just in Barbados, shows that it is better to force governments to be disciplined in their debt incurrence than have domestic pension entities that few understand become a forced buyer of domestic government debt.

    What equities would you include in these “specified local investment vehicles”?  I am not aware of any large family businesses in Cayman or financial firms that are seeking a public listing.  This brings us back to government-owned entities.  See my response above to that proposal.

    “We need the specified investment vehicles to be secure and to bring a guaranteed return on investment to our pensions.”

    How do you propose to make specified investment vehicles secure and provide a guaranteed return on investment?  The only way to do this with the vehicles mentioned is for Government to provide annual subsidies which guarantee that return.  Such subsidies would very likely to have to increase substantially over time which would only make the problem with government finances worse.

    “We need the pension contribution for everyone to be set at a minimum amount of $300 per month. If the salary is less than $3,000 per month then the employee should continue to pay 5% of salary and the employer make up the difference to bring it to $300.”

    This sounds good in theory.  However, implementation would lead to significant inflation locally.  Cayman is already an expensive place to live.  Let us take people working at supermarkets stacking shelves and working at checkout counters for $6.50 an hour.  Their monthly salary is around $1,100 per month.  If their employer contributes 5% of their salary to a pension plan and the employer contributes the balance to make the monthly contribution $300, then the employer’s monthly pension contribution increases from $55 to $245.  If we factor in monthly health insurance costs for those employees of around $300 per month, that would increase the cost of employing that person by 13%.  That increase in costs would be passed on in terms of higher prices at supermarkets and other businesses.  I am not opposed to this suggestion but we need to be aware of its impact.

    “Government should sell our public owned companies to our own pension fund providers.”

    By all means, try to sell those that are profitable but it would be a mistake to force domestic pension plans to make bad investments.

    “I believe that our current utility company, CUC, is guaranteed a return on investment of somewhere between 10% and 15%, so these entities that will be owned by our pension funds and thereby ourselves will need the same arrangement.”

    This is no longer true.  CUC’s rates are now set on the basis of the rate of inflation and fuel prices.  The total return from owning CUC’s shares over the past 5 years, including reinvested dividends is 3.1% per annum.  We bought CUC shares for the multi-employer pension plan that we partially manage in 2009 when its share price nearly halved.  At that point, the dividend yield on CUC’s shares was over 9% and the income is not subject to withholding tax.  It has performed well for the plan and is one of the plan’s largest investments.  No one forced us to invest in CUC.  It simply made financial sense for pension contributors.

    “In five years time when the government has divested 80% of all of these assets, government will have earned enough to pay off the total public debt and have a surplus.”

    Show me the numbers!

    “The pension funds will have a stable and sufficient return on investment.”

    How?

    “If our pension fund has a return of 9% to 12%, we would all be in a much better financial position when retirement time comes around.”

    Yes, that is a big “If” and one that is entirely unrealistic.  Any pension consultant or actuary will confirm that such estimated investment returns for a pension plan are “pie in the sky”.

    “The biggest windfall of all will come in five years time, if we chose to take these companies public by having them listed on the NASDAQ or other exchange.”

    Buyers of shares listed on NASDAQ are not forced to invest in shares listed on that exchange.  Who do you think will be the buyers for shares in the entities mentioned if they are listed on NASDAQ?

    “This public offering through a US or other international exchange will bring in substantial new investment, which can then be applied to green energy such as solar energy, wind-driven energy, the purchase of CUC, the purchase of our fuel depots (or the creation of our own), or other similar investments.”

    Who is going to get this “substantial new investment”: government from selling part of its 20% stake or domestic pension plans from selling part of their 80% stake?  If some investment banker was metaphorically able to turn lead into gold and sell shares in these entities to buyers in a NASDAQ listing at a higher price than pension plans were forced by government to invest in them in the first place, it seems unlikely that government or the pension plans would invest in green energy projects, CUC or purchasing fuel depots.  It would also be ill-advised from the point of view of pension contributors or citizens of Cayman with the possible exception of pension plans buying CUC shares at the right price.

    “Admittedly, it will be almost impossible to guarantee fixed earnings for Cayman Airways and the two public attractions, but that does not mean that they cannot be made profitable by privatization and by the increased efficiency that privatization will bring.”

    Maybe privatisation would improve efficiency and reduce losses.  However, it is not realistic to believe that Cayman Airways can be made profitable without considerable government subsidies.  Remember Warren Buffett’s comment: airlines as a whole haven't netted a dime since 1903.  The airline business requires economies of scale to be profitable.  There is no way that that 3 islands with a population of 55,000 people are going to have an airline that can be run profitably.

    “Our current system of sending our hard earned dollars to be lost in the US stock market is, in my opinion, much more risky than the solutions which I have outlined here.”

    I think that I have said enough to dispel both these misconceptions.

    • Anonymous says:

      Desmond, I believe Ari is too young to remember an airline called Panam, but he seems to be advocating what Panam employees did. They said it was their retirement money, and insisted that most of it should be invested in the then high-flying stock of the company they worked for rather than other companies that were not doing as well on the stock market.

       

      When Panam collapsed, so did the stock, and their employees lost both their jobs and their pensions. Because of this I believe that laws now exist in the US to force diversification of pension funds so that there will never be another Panam pension fiasco.

    • Ari Greenwood says:

      Please allow me to respond to Desmond Kinch.

      I thank you for your extensive rebuttal of every problem and proposal as set out in my article. It sure seems to have caused a surge of activity with your heart rate though, and I encourage you to calm down.

      Surprisingly after reading your post in its entirety, I found that you offered not a single solution to any of the problems that are faced by either the people whose pensions are at risk, or in relation to the disposal of government entities Neither did you offer any real solutions for the financial problems that will continue to be incurred by social services for people whose pensions will not support them when they retire.

      Thank you for the information that the pension fund that you manage has earned 3.4% compounded over the past eight years. That is a good result considering the current market situation.  My own pension has not fared quite as well.

      Another problem that I did not mention in my article was the fact that when retiring, people often withdraw whatever pension funds they have accumulated, and transfers it to an annuity. A problem with that is if the pension fund has had a substantial loss at that particular time. For example the two funds listed on your website shows that in 2008 one had a loss of 49.3% and the other had a loss of 41.5%.

      This type of volatility does not provide the stability that I would feel comfortable with, when investing my hard earned pension.

      I would like to respectfully say Sir that you are in the business of managing pension funds, so you no doubt will be affected by whatever happens and it is normal human nature to fight against any change that will affect you. The people of this country on the other hand, are the ones whose lives are affected by the pension issues, and it is the people of this country that will eventually decide how their pensions are invested – not the pension fund managers.

      It is inevitable that government will eventually have to dispose of the public authorities and companies as I suggested in my article. When that time comes there will be agreements limiting costs to consumers, and rates established ensuring enough profitability to allow the company's survival, and a fair return on investment.

      Once they are privatized I believe they will become profitable and I must give you some credit here Mr. Kinch, because I too believe the same thing that you yourself said in a letter to the editor of the Compass newspaper on Sept 10th, 2009 and I quote you directly from that source:

       “Well–run private sector companies become more efficient and stronger in recessions and gain a competitive advantage”.

      I stand by my proposed solutions and I encourage others to offer their solutions, but your rebuttal has offered absolutely no solutions.

      In the end this is just my opinion, and your post Mr. Desmond Kinch, is just your opinion, however biased either of us might be because of our respective positions.

      One of us is at least trying to propose some solutions and the other is not!

    • Knot S Smart says:

      It looks to me like Ari Greenwood has thrown a rock in the pig pen…

      And the rock must have hit something because I hear a lot of squealing…

  4. catherine says:

    whenever i review my pension statement every quarter, i see more losses than gains.  this brings a lot of anxiety because i know someday soon, i will have to retire.  and of course i need THAT pension money.  will it be different if the pension fund is invested here? i think so.  in some way, it will put my mind at ease knowing that my hard-earned money is somehow helping to rebuild this country's economy.  mckeeva represents the government, i know, and XXXXX.  but there are still people in the government who truly care for these islands.   people who are willing to take calculated risks, just like what mr/ms greenwood suggests.

     

    for all those who gave the poster a negative review, please reconsider.  he/she's not pulling a magic wand for all our woes to instantly disappear.  he/she suggested a thorough review and PHASED implementation (a 5 year plan, as i understand from the viewpoint).  instead of plainly shooting down this idea, why don't the the private and public sector consider this as a viable alternative?  i believe there are still sensible people in cayman.

    • Arf says:

      "… in some way, it will put my mind at ease knowing that my hard-earned money is somehow helping to rebuild this country's economy."

      Except that it won't because the CIG will piss away the proceeds, the investments will fail (without question), and the islands will then have further debt, more unemployment, and everyone who retires looking for a government subsidy from a bankrupt state and they'll get nothing.  This should actually terrify you.  What needs to happen here is a wholesale change in the way this nation operates, such that it moves away from a welfare state and operates under a balanced budget just like every other propserous nation (or successful business for that matter).  This isn't hard to understand, unless you live in West Bay and need to sell your vote for a new fridge of course.

  5. gonzo says:

    I wouldn't voluntarily invest a penny in any business set up or run by the Cayman Islands government.  Like a black hole, it bleeds critical mass off of all businesses that get within its vicinity, and utterly destroys all that get within its event horizon.  I'd rather not see the CIG appropriate the whole of the pension fund to piss away like it has done with every other dollar that it's got its fingers on.  Like the FCO, I have no faith in the CIG to manage money at all – not at all – and I do NOT want the CIG to get my pension dollars in exchange for worthless stocks in companies that will fail just like they always do when not propped up by tax dollars (and yes, duties and work permnit fees are taxes).

  6. Anonymous says:

    Not to be a negative Nancy here (it is an interesting idea and thank you for sharing it), but in one line you talk about how much more efficient it will become as a private enterprise.  Then in the next line you talk about guaranteeing the entity a 10-15% return.  What could be the possible motive for such an enterprise to be efficient?  Let’s assume they run the operation as efficiently as theoretically possible.  For sake of argument let’s that is 1M per year.  Now they are guaranteed a 10-15% return so they will make a profit of 100-150k.  Now what happens if they run it as horribly as humanly possible?  For sake of argument let’s say that is 10M per year.  Since they are still guaranteed a 10-15% return they now make a profit of 1-1.5M per year!

    Short version…. Assuming things will magically become efficient while at the same time really providing the opposite incentive isn’t going to end well for anyone.

  7. Anonymous says:

    And not one of you has mentioned the fact that our 'leaders'  are being very well paid AND taking their pension now. That in itself is WRONG!!!!!!!!!!!!!!!!!!!!! But THEY VOTED IT IN!!

     

    They understand very well the need to get it now while they can. Foul, immoral miscreants. Every single one of them that voted yes to this option.

  8. Anonymous says:

    "I believe that our current utility company, CUC, is guaranteed a return on investment of somewhere between 10% and 15%, so these entities that will be owned by our pension funds and thereby ourselves will need the same arrangement." – I dont think i understand the logic of this. If the OP reads it can he respond?

    So by this logic will we give a guarantee to ourselves that if our investment doesn't make the return we want that we will pay ourselves the difference?

    Or is there someone else guaranteeing the return?

    For example I am a caymanian, a pensioner and a customer of the water authority. If my water bill increases so that the water authority can provide a better return to pay my pension then I am no better off. Alternatively If my taxes/fees I pay to government increase to pay my pension then I am also still no better off.

    Where is the money to fulfill the guarantee coming from?

  9. Tony says:

    Sorry, disagree. You are advocating an enforced repatriation of pension monies into Caymanian infrastructure. This alone is contrary to good financial governance, since it

    (a) takes choice away from the pension holder and

    (b) exposes the money to relatively high risk.

    Let us assume we can overcome questions about fair valuation of government assets and that pension funds can buy-in at fair prices. You simply cannot guarantee returns, which is central to your plan, and any local industry would by its nature (because of its small size) be a risky investment. These authorities can make losses too.  If you were to somehow try to legislate what the returns must be, you would be exposing the Islands to more uncompetitive charging like CUC have enjoyed for past decades.  

    Finally we have issues as to liquidity – when savers become pensionsers their funds come out and either buy an annuity or otherwise begin to be liquidated. But how liquid can infrastructure investments really be?  Where is the market?

    On the face of it your proposal sounds like a good idea but in practice, no. Couldn't work. And OH the temptation for political football and corruption. So my advice would be, speak to an investment adviser about your pension and then move your money into a collection of funds which suits your long-term savings objectives and risk comfort-level. Not all investments are bad and lower risk investments are available (e.g Treasury bonds, money market, or even blue chip equity held for the long-term).

  10. Money Manager says:

    Please let there be an opt out too because you can be sure none of my pension is going near that pile of crap.

  11. Anonymous says:

    Excellent plan, except the current level of corruption in our Government would almost guarantee failure. We need (honest) businessmen and economic stakeholders at the helm to get any sort of traction on innovative solutions such as this.

  12. Anonymous says:

    Pie in the sky…  To make a long story short, Cayman Airways and CINICO are insolvent without government intervention and assistance.  Just because you privatize them doesn't mean that the situation will change – in fact, most airlines around the world are on the cusp of insolvency.   The sewerage system is nothing to write home about, in other words, also a liability – which leaves the the Water Authority as the only entity that may be profitable.  Yearly, guaranteed returns of 10% – 13% are unrealizable in most industries and unlikely even if said industry is a monopoly…  In conclusion, you have 3 of 4 entities that are bankrupt or on the verge, and a fourth that is profitable, but not enough to make up for the rest.

  13. Anonymous says:

    This is like putting all your pension into the stock of the company you work for. Bad idea. Yoiu have to diversify beyond the Cayman economy. 

  14. St Peter says:

    On the same line of thinking – why does government not request a joint effort by our pension funds including the CS pension fund, to build and finance our new port facilities?

    On a major project like this we could use the plans that we already have from GLF or other company. Then the pension funds should be allowed to only obtain bids only from our big 5 local contractors who have been in business here for decades – Arch and Godfrey, Mc Alpine, and Hurlstone comes to mind. These local firms would then employ the expertise that they need for this project. This will keep the costs down, and most of the funds in our own economy.

    Give our pension funds a similar agreement as we are so willing to give the Chinese…

    It is high time to invest our pension funds in our own economy!

  15. Truth says:

    This would work IF you could some how solve your problem of a 5th grade mentality government.  And with a well funded third world voter block it won't.  Not until all the money is gone and no one will let you borrow anymore and it all finally fails.  Only then would it have a chance in Cayman.

  16. Kath says:

    Interesting recommendation however, comparing CUC to an entity like Cayman Airways is like comparing apples to oranges.

    You refer to the instability of overseas financial markets that pensions are currently invested in and my immediate thought, is there anything more risky or unstable than an airline? Let's face it, airlines do not have a great track record and having my money invested in CAL would not sit well with me.

    I do think that applying your recommendations to the Water Authority, Sewage and the Port Authority carry water and should be investigated further. These bodies provide essential services, unlike CAL, and present viable investment vehicles.

  17. Anonymous says:

    To all concerned

     

    This article is very well written and makes a great deal of sense to me. I will go on further to say the comments that were made makes us all aware that we are in uncharted waters but Cayman can come out victorious if the CIG would only listen to those that put them in those positions but as we well know this is not the case. I want to stress to all who read this if the CIG diverses it's assets to a legitimate foriegn entity they will have to make a profit on there investment. This means we will all have to pay extra out of our pockets and the struggling people of this great island can't take more increases when salaries are on the decrease. I would love my pension to be used to benifit this island and it's great Caymanians.

    Yours Sincerely

    Expat

     

     

  18. Anonymous says:

    I am betting where we see thumbs down on such an innovative and thinking about positive strategic solutions we are seeing from people who won’t get trading fees and pension fund managers who will have to be held more accountable than to say pensions are losing money because of the global economy well duh if you invest most of our funds in markets that have already proven to be so spectacularly volatile and controlled by the whims of people who take the money and run (hello day traders and futures traders) then yup likely to losethe money but instead of them having to be held accountable under kpi’s for example they still get their management fees. Under a plan like this a salary restructuring of the pension managers themselves can occur and they can also be a part of the solution. Mi think this has the potential to create a win-win solution all the way around. Yes it is a bit more complicated than presented here but still it is investing our funds in our country with the people having a say in it. I would even go so far as to say be one of the investors in a casino. The native American tribes who have done so continue to provide a very positive cash flow to their people, their partners receive a tidy profit and the casinos bring a robust tourist model. I would be willing to have my pension invested in a casino if patterned along the lines of the ones in California, Florida places like that, it’s no different then the pension fund managers gambling my pension away in stock markets but at least I might get a double gain this way..l.bring on the thumbs down 🙂

    • Anonymous says:

      From your comments I am thinking that you may not be aware of pension fund investment regulations which set out what pension funds can and can not invest in. You blame the pension fund managers investing in "spectacularly volatile markets" – are you aware that the government regulations require the pension funds to make these investments. For example at least 40% of all plans have to be invested in publically traded equities? i.e. the "spectacularly volatile markets" you are complaining about.

      Another item which you dont seem to be aware of is how the service providers to your pension make money. As per my understanding they make a % of the total funds therefore the more money the fund makes the more money they make. So it makes absolutely no sense to assume that they are acting against the interest of the fund.

      Last year I attended the AGM of my pension provider (there were a handfull of people in attendance although every member had received an invite). At that AGM the investment manager set out his outlook for the next year – it was not good and he as much as told the room that he expected that we would loose some money. I was baffled by this. So why invest if you think we will loose money by doing so? The answer was shockingly simple – there was nothing he could do about it the law fo the cayman islands required it.  

      The problem with our pensions is the Investment regulations – all of which were put in place to protect us. However, times have changed and while investment of40% in equities may have made sense in the past as the last 4 years have shown us equity markets can have a higher risk than pensions can tolerate.

       

       

       

      • Anonymous says:

        09:38

         

        And who sat with our government which highjacked them into making these laws? your high risk investors are all in jail. you will never again see them. give it up. Take the US social security plan, they invest their money in the federal government…. guarantee and liable.

        • Anonymous says:

          4.05

          I was not aware that anyone had sat with our government and "highjacked" them into making these laws? Is that what really happened?

          Was it the Brits? Was it the ex-pats? Was it Elvis? Pease tell us all more…

          The truth is that the regulations were put into effect at a time when no one could forsee the kind of devastating financial crisis which was to come in 2008 and which the markets are still suffering from. What made sound investment regulations back when they were written don't make sense in an extended global recession. The regs now need to be amended urgently (and should have been 3 years ago) so that we can avoid further loss and find safe harbour for our pension funds while we wait for the storm to blow over.

           

    • Anonymous says:

      05:20

      you hit the nail on the head. The present system is no different from Madoff ponzi sceme. He didn't go to jail for losing the people's money, he was a damn thief. 

  19. N Somniac says:

    This is cloud cuckoo economics.  Sell loss making businesses to a pension fund which will hold non-doversified investments in a very risky economy and expect to produce a return of 9-12%?  And part of the plan is that we will buy a few leprachaun eggs and these eggs will hatch into leprachauns who will give us their gold and lay more leprachaun eggs which will hatch into . . .

    • Knot S Smart says:

      N Somniac – you seem to be quite brilliant! What else are you an expert in other than cloud cuckoo economics and leprachaun eggs that hatch into gold? Please would you share some of your other smart ideas with us?

  20. Anonymous says:

    Actually makes a lot of sense, I know I would rather have my pension invested in my own country than the U S stock market. Sure there would need to be some tweaking but this has potential.

  21. Anonymous says:

    CUC is not guaranteed any particular rate of return under its new license. The target rate of return is 10% but it has earned less than that in certain years. In no event may it earn more than 13% without a rate reduction.

  22. Anonymous says:

    I really like this idea. Like the writer says there can be a better revised plan but the basic idea is good. I would to sit and talk with the writer about it. A good government would take this into consideration.

    • Ari Greenwood says:

      Ari Greenwood is a pen name that I use for privacy. I am simply trying to bring new ideas to the table in a non political way. You can contact me at email: ari.greenwood@yahoo.com

  23. Anonymous says:

    This is one of the most innovative and ingenious ideas I have heard.  It is very bold but clearly practical.  Investing our pension funds in our own infrsatructure where we can monitor and direct perfoamnce is very sensible.  On the issue of Government not taking it into serious consideration – vote for those that support it as a part of their manifesto.. you'll be surprised how quick they listen!

  24. Anonymous says:

    Makes sense to me…clearly Cayman has a major "pension dillema"!…and these solutions seem sensible.

    Many on social services today are "retired" from CIG and otherwise on so smal a pension that they are unable to make ends meet…in Cayman's high cost of living environment.

    Unfortunately many powers that be like having the masses beholden to them…as it helps dependency…and helps to ensure "vote buying".

    And thus because these suggestions would "empower the people" it is unlikely CIG will consider it!…certainly not the current culprits that hold power!

     

    • Anonymous says:

      This makes a lot of sense. My only concern would be that it seems the more money we have, the more we waste and spend foolishly. If the money from the divestments were to be managed properly, and I do not mean by our Minister of Finane, then this is certainly something to consider.