The revelation is contained in an internal memo sent out last week detailing how government intends to reduce a projected $61.7 operating deficit to $44.4 million by 30 June.

According to the memo from Financial Secretary Kenneth Jefferson, if the proposed cuts take effect this month, some $5.2 million will be saved in salaries; another $8.6 million will come from a pension suspension; and the rest, about $3.2 million, will come from requiring civil servants to pay half of their monthly health insurance premiums.

Those figures indicate that nearly 51 per cent of the proposed savings from March through June would come from pension payments that the government wouldn’t make.

In a full year, the salary reduction would save the government $15.6 million; the proposed pension suspension would save a projected $25.8 million and the 50 per cent payment on health insurance premiums would make up $9.6 million.

There is one problem with the pension suspension plan. The proposed suspension is illegal under current Cayman Islands’ law.

According to the Public Service Management Law, government must pay 12 per cent on top of a civil servant’s monthly salary toward a retirement fund. The pension payment measure is also contained in the contracts of government workers who are expatriates or who are over 60. There are more than 1,300 of those individuals working in central government.

“Certain legislation will require amending in order for this particular measure to be achieved,” the financial secretary’s memo read.

The government had earlier considered the idea of temporarily suspending its employee pensions, but later withdrew the measure because civil servants roundly rejected the idea as it was proposed.

Lawmakers recently passed amendments that allow a voluntary pension suspension for private sector workers to take effect in a few weeks.

Earlier the Cayman Islands Civil Service Association had outright rejected a salary reduction, but indicated it would be amenable to a pay deferral. Any pay deferred would have to be made up at a later date, association President James Watler said.

“This way, when other measures are enacted successfully yielding the desired savings, the deferred amounts can be paid to employees,” a draft report issued by the association in August read.

Pay reductions and health insurance premium payments may also run afoul of current civil servant contracts for foreign workers and Caymanian civil servants who have remained in government jobs past the standard retirement age of 60.

If government contracts are cancelled prior to their expiry, most contain provisions for a severance of up to three months to be paid to those workers.

The civil service association’s management council is expected to respond to government’s budget cutting proposals by Wednesday.