Pensions Act under microscope

Employees and employers can at least breathe a sigh of relief as authorities seek to improve the controversial Pensions and Terminal Benefits Act of 2010.

Both Treasury and Reserve Bank of Malawi (RBM)—the two government institutions that are championing the evaluation—have confirmed to Weekend Nation that consultations are underway with different stakeholders to review the pension law.

Ministry of Finance and Economic Development spokesperson Davis Sado said on Tuesday the review will help the Act to be updated with the current trends.

“Being a review it is a process, so we are still looking into the proposed areas of review and concretise them to come up with issues [on] which we have to consult stakeholders to come up with a position,” he said.

When pressed to spell out specific areas expected to be scrutinised, Sado said RBM was better placed to comment on that.

In July 2011, Malawi implemented the new Pensions Act which, among other provisions, made pensions mandatory to all employees to build national savings.

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.

However, the Act sparked controversy because of a clause that required  60 percent of pension benefits to be withheld from the beneficiaries  until they reach the retirement age of 60.

Another grey area in the law, according to interest groups, is failure by government to set a ceiling for pensionable emoluments and the decision not to allow the pension funds to be used as collateral.

Currently, there are three scenarios one can access pension investment. These are: when you retire; should you die while still working; and should you resign, be retrenched or dismissed and are unable to secure alternative employment after six months.

In an interview, Finance Minister Goodall Gondwe described the exercise as normal and important.

“These things are meant to be reviewed all the time and we will not be the only country that does it,” he said.

Following the implementation of the Pension Act in 2011, government and pension firms emerged as major winners with pension assets growing from K59.5 billion in 2010 to K520 billion in 2017, according to RBM.

Pension contributions—the amount of funds that individuals and their employers put into pension funds also grew from K5.8 billion in 2010 to K30.6 billion in 2016.

In terms of people on pension, the numbers have risen from 74 000 in 2010 to about 260 000 at present.

On monthly basis, at least K4.7 billion is contributed to the fund from over the 260 000 members.

However, insurance industry players still feel more needs to be done as the savings are being contributed by 260 000 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,” said an expert in the industry.

RBM spokesperson Mbane Ngwira on Tuesday said the review will take into account changes in the economy, including looking at the possibility of accommodating self-employed people “who were left out in the new law which only covers the employed.”

Ngwira said the contentious decision to disallow the use of the funds as collateral, as was the case previously, will also form part of the review.

“Previously people could use the funds as collateral for any type of loan but then the law was changed, but stakeholders argued that if you want a pension contributor to live comfortably, why not use the same funds as collateral for housing, than for one to have millions as pension funds but without a house,” Ngwira explained.

He highlighted that pension is ‘insurance’ and, therefore, it is important that the Pensions Act is in tandem with the Insurance Act; hence, the need for the review.

According to a 2013 World Bank Doing Business Report, Malawi’s mandatory pension scheme was a negative reform which worsened the country’s business climate.

But throughout the years, government officials have defended the new pension scheme which was introduced during the Bingu administration and makes it mandatory for employers to contribute 10 percent to the fund monthly while the employee contributes 5 percent.

The Malawi Congress of Trade Unions (MCTU) has since welcomed the review.

MCTU secretary general Dennis Kalekeni said the labour force movement has misgivings with the current Act and the concerns were raised during consultations with RBM.

Said Kalekeni: “Our major concern is the current arrangement whereby people are only paid 40 percent of their contribution when they retire and government retains the 60 percent which is paid as salary on the 14 of the month.

“Government should consider giving the 60 percent and retaining the 40 percent which is paid on monthly basis.”