In July 2011, Malawi implemented the new Pensions Act of 2010 which, among others, made pensions mandatory to all employees to build national savings. Nearly six years later, The Nation Editor AUBREY MCHULU (AM) spoke to Old Mutual Malawi acting chief executive officer Edith Jiya (EJ ) to get some insights and demystify pension myths. Excerpts:
AM: Malawi implemented mandatory pensions through the coming into force of the Pensions Act of 2010 on June 30 2011. Prior to the law, there were mixed views regarding the mandatory pensions. Proponents argued it will increase/improve national savings and facilitate increased infrastructure development. What has been the impact so far almost five years down the road?
EJ: There has been a notable and significant improvement in pension savings since 2011. According to the statistics compiled the Reserve Bank of Malawi [RBM], in 2010 total pension savings were valued at K59.6 billion. The savings grew to K247 billion in 2014. You can see that the scale of pension assets quadrupled in four years.
These funds are invested in stocks either through the Malawi Stock Exchange [MSE] or private equity, interest-bearing assets through government as well as private bonds. The impact of such [investments] on infrastructure development thus far has been minimal.
The government through the Ministry of Finance, Economic Planning and Development has been working on a policy to guide such investments as currently there are some challenges for pension funds to directly access some of the investment opportunities in areas such as water, energy and the like.
We are hopeful that this will provide the much needed alternative channels for putting these savings to productive use and earn a competitive return for the pension fund members. What is critical for this to be successful is to ensure that such instruments are safe, secure and give competitive returns
AM: The civil service was supposed/expected to join the mandatory pension arrangement two years after the private sector, what is the status?
EJ: There has been notable progress to implement changes in the civil service from our perspective. Implementation of the same is currently underway. There has been a number of groups/segments of individuals that are still exempted from the implementation of the Pension Act. It is our hope that at some point a review of such will be done to enable them be on board.
AM: There is a perception that it is difficult to access pension benefits under the new Pension Act. How can one access these benefits?
EJ: There are three scenarios one can access their pension investment. These are: (a). When you retire; (b). Should you die while still working for your employer; and, (c). Should you resign, be retrenched or dismissed and are unable to secure alternative employment after six months. In this case, you may access all your individual contributions plus bonuses/interest.
AM: What are the common myths, facts and frequently asked questions about pensions?
EJ: We get questions such as: ‘Why should pension benefits be held from me only to benefit my dependants when I pass on? I need to also enjoy my own ‘sweat’’. Realities of life are that either one will die while still in active employment or they may live to retire or indeed one can be disabled due to accident or disease. In each of these cases, it is important for one to ensure that they have adequate savings to take care of their needs should any of these realities happen. Whatever the case, each individual will reach that stage in life where either they directly need to live on such savings or indeed their dependants will need the savings to survive. Ideally, any responsible individual should be working towards making savings for these eventualities.
AM: How many people are now on pensions? How do the current statistics compare to the situation prior to implementation of the new law?
EJ: Pension assets have grown from K59.5 billion in 2010 to K247 billion in 2014. Pension contributions i.e. the amount of funds that individuals and their employers are putting into pension funds have grown from K5.8 billion annually in 2010 to K30.6 billion in 2016. In terms of membership, the numbers have risen from 74 000 in 2010 to 200 000 at present. You can see that there has been notable scaling up. However, the savings here are being contributed by 200 000 Malawians which is a small proportion of the Malawi population [now estimated at 17.8 million]. There is value that can be gained if savings were encouraged for the general populace.
AM: What challenges is the pensions industry facing in implementing the Pensions Act of 2010? What strategies do you have in place to overcome them?
EJ: Well, the major challenge facing pension industry include the following: Scale: Much as we appreciate the strides and notable pooling of pension assets in the last few years, the sector is still sub-scale. The industry requires to innovate and invest to attract more members into the pool. On the other hand, the policymakers also need to be constantly working on how they can bring more Malawians into this pool. Skills: Investment and pension management skills are still scarce in this growing market. Each business is currently growing its own timber to fill this gap. We are working with various universities to create capability through the universities. Shallow investments markets: As the industry gathers these assets, it is critical that there are safe, adequate and productive avenues where such assets are productively deployed for the benefit of the pension fund members. We are still developing in that aspect and it is incumbent on both public and private sector to create such avenues and opportunities.
AM: What basic details do people need to know about pensions in Malawi based on the existing law?
EJ: There are several. For example, there is the question of eligibility; one is eligible for pension as soon as one is employed. Second is transparency. It is critical that information on your pension savings is shared with you regularly on the contributions made and the bonus or interest earned over a given period. Further, it is important to ensure that one reviews such information as soon as this is available. The law has various avenues for engagement between trustees of the pension funds and their members. The law also provides specific situations where an individual or their dependants can access their benefits. This is on retirement, death or separation [termination of contract]. Individuals should be informed of this information upon joining any pension fund. Safety and security of pension assets is also clearly stipulated in the Pension Act. Issues such as when contributions should be submitted to the fund, regulations on investments are also provided for in the law.
AM: When the Pensions Act of 2010 was enacted some people expressed reservations with a provision that one can only access pension after a year or so of leaving employment or attaining the age of 50. What is the situation relating to this law?
EJ: The law currently allows one to access pension contribution upon separation from employment, before reaching retirement, after six months and only in circumstances where that individual has not secured alternative employment. This is a provision that was aimed at achieving preservation of such benefits. Under the previous framework, individuals could access pensions when moving from one employer to the next. n