The Reserve Bank of Malawi (RBM) says pension funds contributions registered an annual increase of K112.8 billion in 2019, up from K98.3 billion collected in 2018, representing a 14.7 percent increase.
In its Financial Stability report released on Friday, the central bank said pension contributions increased by K61.5 billion in December 2019 from K51.4 billion in June last year.
The bank, however, said asset growth was negatively affected by growth of outstanding pension contributions which rose to K20.2 billion in the period under review, from K17.8 billion in June 2019.
Reads the report in part: “The sector faced significant counterparty risk from some employers who failed to remit pension contributions in line with statutory requirements, as reflected in rise in pension contribution arrears.
“In addition, there was a notable increase in investment in private debt by pension funds during the period but the possible failure by the private entities to settle their debts represents counterparty risk.”
The Pension Funds Act made pension funds remittances mandatory and under it, employers are mandated to enroll their employees on a pension scheme.
Employees are expected to contribute a minimum rate of five percent while employers are mandated to remit 10 percent of the employees’ monthly gross salary which aggregates to 15 percent monthly.
In August last year, RBM Governor Dalitso Kabambe named and shamed non-compliant institutions and warned of court action if institutions failed to comply in line with the Pensions Act provisions.
Malawi Congress of Trade Unions (MCTU) president Luther Mambala said failure by employers to remit pension funds means that employees will lose out their savings when they retire because pension funds will be minimal or not available.
He said: “MCTU will sue all the non-compliant companies, otherwise employees will continue to be taken for granted. Employees will live miserable lives if nothing is done to protect them.
“We need to correct this problem now before it is too late. We feel these companies need to be punished. We are saying this because at the end of the day ,it is the employee who will suffer at the retirement age as there will be no funds for them to enjoy retirement”.
Employers Consultative Association of Malawi representatives were not readily available for fresh comments, but earlier, the association’s president George Matipwiri admitted that most employers are struggling to remit pension funds.
In July 2011, Malawi adopted the Pensions Act of 2010 which introduced a mandatory contributory pension scheme to build national savings. Section 65 of the Pensions Act (2011) mandates the Registrar of Financial Institutions to take to court and punish every institution that fails to comply with the Act.