Assets in the pension sector increased by 11.8 percent to K801.1 billion over the past six months to June 2019, owing to increases in investment income and contributions, Reserve Bank of Malawi (RBM) figures have shown.
The growth was achieved despite the low interest rates environment and share price losses being registered on four domestic counters listed on Malawi Stock Exchange (MSE).
According to the RBM June 2019 Financial Stability Report, total investments increased by 11.1 percent to K769.4 billion in June 2019 from the December 2018 position, with investment in listed equities as a share of total investments dominating the asset portfolio mix at 48.7 percent, up from a share of 39.4 percent registered in December 2018.
Total investment income, on the other hand, decreased to K73.2 billion in June 2019 from K80.8 billion in June 2018 due to a fall in prices of some of their equity investments while pension contributions registered a marginal increase to K51.4 billion compared to K49.8 billion in June 2018.
Although unrealised gains still accounted for 57.1 percent of total income, outstanding contributions were recorded at K15.7 billion as at end of June 2019.
“The pension sector remained sound during the period under review as a result of real growth in assets. Levels of contribution arrears have been worrisome. Going forward, the industry is likely to continue to grow with expected high levels of investment returns and continued contributions,” reads the report in part.
Speaking earlier, Illovo Pension Fund trustee Lekani Katandula called for tax reforms to reverse the trends observing that taxes are hindering pension fund managers from investing a huge chunk of pension funds in infrastructure development, resulting in most of the money being invested in short-term instruments.
He cited value added tax (VAT) and capital gains tax imposed on infrastructure as being restrictive, observing that this becomes a risk that hinders return on investments.
But RBM Govenor Dalitso Kabambe said as the situation stands, it means that the bulk of the pension funds have been invested in short-term instruments which are prone to short-term interest rate movements as well as share price fluctuations.
Since the passing of the Pensions Act in 2011, the number of people with pensions has increased from 102 505 in 2011 to 422 993 as at March 31 2019, with six pension service companies as opposed to three at the beginning.
RBM projects that this year end, pension assets will be at K894 billion and increase further to K1.1 trillion by 2020.