The Reserve Bank of Malawi (RBM) is yet to collect K13 billion in pension contribution arrears from 817 employers, a development financial analysts say threatens social security of employees.
This shortfall represents 1.8 percent of total assets of the pension fund record of 406 000 employees recorded at K716 billion as at December 2018, according to RBM.
Meanwhile, RBM says it is implementing a Centralised National Pension Database (CNPD) to facilitate compliance of the Pension Act and all employers are being requested to submit up-to-date biodata of their employees for registration purposes by April 30 2019.
In a written response on Wednesday, RBM spokesperson Mbane Ngwira said when the Pension Act was being passed in 2011, pension fund assets were at K74 billion.
In the absence of arrears, he said pension assets would have been more than K729 billion because incomes from the arrears would have been reinvested to create more assets.
Ngwira said to address this, the law requires that pension arrears must be remitted with a penalty interest of bank rate plus 10 percent per annum during the period the contributions were in arrears.
He said: “Everyone, including the economy, is a loser when pension funds are not remitted. In the first place, pension members fail to access their pension benefits when they are due or may access less than what was due to them.
“Secondly, pension members lose in terms of investment returns because when the contributions are received by the trustees, they are invested in various instruments where they earn investment returns. Thirdly, the pool of investible funds is less than what it should have been, thereby denying the opportunity to invest in development projects that could have raised people’s incomes,” he said.
Employers Consultative Association of Malawi executive director George Kakhi said after eight years, employers now have enough time to fully comply with the provisions of the Act, urging its members to make plans to settle the arrears.
On his part, Nico Life Insurance Company chief executive officer Eric Chapola said it is employees that are losing as their money is not earning any return since it has not been received by pension administrators.
“Pension funds are vital for the development of any economy. There are many cities in the world that have thrived from pension funds. What is important though is that these funds must always be well invested to eventually benefit the owners of the funds who are employees in an organisation,” he said.
Alliance Capital Limited research manager Bond Mtembekeza said on Wednesday that since pension funds are long-term, they feed capital markets more than any other funds, citing Game Complex in Lilongwe and Chichiri Shopping Mall in Blantyre which were built using pension funds.
“Pension funds are professionally managed by investment managers. These allow beneficiaries to realise a return on their funds prior to retirement as the funds are invested further.
“So, non-remittance does a disservice to pension funds beneficiaries as well,” he said
RBM said the CNPD would help the registrar to follow-up on employers with arrears and enforce compliance of the Pension Act. n