Employees need protection on pension benefits

Hon. Folks, that pension contributions have declined and consequently triggered a corresponding rise in outstanding pensions contributions should be a source of concern for everyone on a pension scheme.

The Reserve Bank of Malawi (RBM) in its Financial Stability Report for 2020 reported that pension contributions dropped 9.5 percent from K61.5 billion in the six-month period leading up to December 2019 to K55.6 billion in the first half of 2020.

Consequently, outstanding pension contributions rose more than 20 percent to K24.4 billion in the period under review from K20.2 billion in December 2019. The situation is critical.

It goes without saying that the statistics show that the hostile economic climate out there is negatively affective business enterprises. Apparently, the Covid-19 pandemic and the measures put in place to contain it have undermined businesses’ capacity to generate profits.

The Employers Association of Malawi (Ecam) feels that government’s decision to introduce a 16.5 percent value added tax (VAT) on the pension services is only making things worse for employers operating in the country.

Some companies have been forced to take drastic remedial measures to keep their businesses afloat. It is just rather unfortunate that said businesses have been forced to scale down on their pension contributions.

The backbencher feels the decision to scale down on pension benefits is unfortunate because it will hurt employees, both in the short-and long-term. Employees lose out on their entitled benefits when companies fail to remit their pensions.

For starters, employees tend to lose out on investment bonuses when their companies do not remit their pensions to pension administrators. Pensions were created on the principle that employees would need an alternative source of funds after they retire from their current jobs.

The pension is something akin to a social protection measure for retired individuals. The government recognised this and made it law that companies contribute a minimum of 10 percent and employees pay five percent of their salaries to the employees’ pension scheme.

It is also important to note that for some sections of employees, who earn just enough to live hand to mouth for months on end, the pension scheme is the only retirement fund that they will have in their later years.

Considering the average salary rates in Malawi, and 15 percent aggregate monthly contributions companies pay to employee pension, the only way an employee can get a meaningful return from the pension scheme is if the money was invested and generated a reasonable return over the investment period.

The bonuses generated from investments also help to hedge the pension scheme against inflation in the long-term. Without the bonuses, employees are ultimately losing money if employees continue withholding their remittances to pension funds.

To put it into context, a pensions contribution will lose on average of about 8 percent to inflation every year if it has not been remitted and invested by a pension’s administrator. The contributions made today will be worth significantly less than their current value two years down the line, let alone decades.

Second, employers do not release employees’ pension benefits if the employees have outstanding balances in the pension scheme. This put employees at an inconvenience when they want to access their pension funds after losing their employment.

It is almost normal to see a laid-off employee wait for years to access their pension funds when legally they should be paid six months after their losing employment if they fail to secure another job.

And how many times have Malawians been denied death benefits after a breadwinner passes on just because an employer was not remitting pension benefits? One can only imagine the trauma bereaved families when they have to wrestle with pension administrators when mourning the death of a loved one.

The sad part is that this has been happening long before the Covid-19 pandemic broke last year. RBM has been complaining about non-compliance on pension remittances since 2017. If this malpractice is only a result of Covid-19, then how do companies explain the years before that?