To get or not to get one’s pension contributions earlier? This is the question dominating discussions in some social media platforms ever since news filtered in that the Pension Act of 2010 is set for review.
The changes are being pushed from two fronts. There is the Pension Act (Amendment) Bill from the Ministry of Finance which proposes several sweeping changes, including heavy penalties for non-complying employers. The amendment seeks to address implementation challenges, enhance the registrar’s supervisory oversight over entities regulated under the law and remove perceived discrepancies in the existing law.
Secondly, there is a motion to be moved by Likoma member of Parliament Christopher Ashems Songwe to pave the way for a Private Member’s Bill to change the Pension Act to reduce the waiting period for one to access their contributions upon termination of employment. It also proposes access to 70 percent of the accured funds on retirement instead of the present 40 percent.
Ten years since its rollout, the Pension Act has attracted mixed reactions, especially to employees who are members of pension funds. One of the contentious issues relates to access to pension funds where one retires or has had their employment contract terminated.
Section 65 of the Pension Act prescribes a six-month waiting period for one to access a portion of their pension funds and this is done upon production of proof that they haven’t secured another job. The changes seek to reduce the waiting period to three months.
There is also a proposal to allow access to pension funds after contributing for 10 years even when one is still working.
There are mixed reactions to the proposals. On one hand is a section of pension fund members who can’t wait to get part of their pension to invest “while still energetic”. On the other hand, there are ‘conservatives’ who are urging caution and argue that the proposal defeats the essence of pension.
What is pension? Pension is generally understood to be a retirement savings plan where an employee saves part of their income to use on a rainy day, especially when one is in their “sunset” years of life. Or to quote one of my good friends Noel Tomoka, “pension is forced saving towards ‘after-employment’ life”.
The Pension Act prescribes a mandatory contribution of five percent of an employee’s gross salary and the employer pumps in 10 percent, making a total of 15 percent. Mind you, these are minimum contributions that can be topped up by either an employee or the employer, but it is a rare occurrence, I must say.
In Malawi, where a culture of saving is on the lower side or almost non-existent, most people, especially those in formal employment, rely on ‘pension’ as a ready source of their post-retirement income.
To the “young and energetic”, the time to make meaningful investments is now. Do not wait for pension money to build a house or start a business. Pension is meant to give you financial freedom in retirement to be able to pay medical bills, utility bills and, of course, afford some beverages. Examples abound of people who turned destitute in life-after- employment because they never prepared themselves well while “still young and energetic”.
Some may argue that they do not have enough to save. Picture this, the pension contribution is just five percent of your gross income and after Malawi Revenue Authority takes 30 to 40 percent of your salary as Pay-As-You-Earn, you are left with either 65 percent or 60 percent. How do you spend this money?
In retirement, one is often old and prone to ailments such as non-communicable diseases, namely hypertension, diabetes and others. These require specialised diets, lifestyle and medical attention which do not come cheap. Your children may help you in one way or another, but you can ease their financial burden by properly planning for your retirement. Proper retirement planning includes buying personal retirement plans besides your pension as it is risky to put all your eggs in one basket.
I am not disputing that pensioners often get a raw deal because the money they receive after retirement tends to be “peanuts”. This could partly be attributed to the one-size-fits-all monthly annuities system used by fund managers. In Section 67(a), the Pension Act provides for an alternative in form of programmed withdrawals. Strangely, pension fund managers have not given clients this option.
Under the Pension Act, members have a right to information that will empower them to know about their pension arrangement. The individuals are also required to closely follow or monitor how their pensions are being managed besides updating their beneficiary nomination list.
To serve the best interests of pensioners, it is also high time the registrar issued directives or regulations on several issues as required under the Pensions Act instead of living it to self-regulation by insurance companies.
My take on the push for early access to pension funds is that those advocating for it should tread carefully and reflect on what pension is all about. Do not simply go with the flow like dead fish as it may end in tears in old age.