Analysts have backed the government’s order for employers to pay 35 percent—bank rate plus 10 percentage points—on delayed pension fund contributions as indicated by a Ministry of Finance notice number 33.
Blantyre-based investment and fund managers, NBM Capital Markets business development officer Innocent Mapwetekere responding to an e-mailed questionnaire on Tuesday, said the approach is very effective, reasonable and fair.
Mapwetekere argued that when setting a bank rate, which currently is at 25 percent, the Monetary Policy Committee (MPC) considers a number of factors, including anticipated inflation, money supply, and in particular the developments in the money and capital markets.
He noted that these are some of the factors that fund managers and trustees use to determine and agree on fund performance benchmarks and targets.
“When contributions are delayed, investment returns on such contributions are deferred. This tendency is very common in most of the employers in Malawi. Actually, there is good number of pension funds with contribution arrears up to years,” said Mapwetekere.
He added that the order will benefit fund members and help in achieving the objectives of the Pension Act.
Another fund manager, responding to an e-mail, said that if pension remittances are delayed, they affect the employees’ pension account through less investment income, missed investment opportunities.
The analyst said the rate is fair as it is punitive enough to make employers make contributions on time noting that it is the employee that suffers yet he has been deducted.
Although the Pension Act provides that all remittances be made within 14 days after the month in which the liability to make the contributions arose, Mapwetekere said what needs to be done is just to enforce it to the fullest.
Earlier, Reserve Bank of Malawi (RBM) a regulator of the sector encouraged employees to take up a proactive role to check if their pension contributions are being remitted.
Malawi commenced the Pension Act in June 2011 which requires mandatory contribution by both employers and employees.
RBM December 2013 Financial Stability Report shows that assets of the pension sector grew to K110.7 billion in September from K101.7 billion in December 2012 attributing the growth to an increase in contributions and favourable investment returns.
According to the same report, monthly pension fund contributions rose to an average K2 billion in September 2013 from K0.7 billion in December 2011.