RBM decries rising pension arrears
Reserve Bank of Malawi (RBM) Governor Wilson Banda says rising levels of contribution arrears continue to pose a threat to the growth of the pension sector in the country.
The Governor said this in a statement accompanying the RBM June 2020 Financial Stability Report (FSR) published on Friday.
“In view of this, the Registrar will continue to carry out compliance inspections and enforcement actions on non-complying employers to curb levels of pension contribution arrears,” he said.
RBM FSR figures indicate that during first half of 2020, pension contributions declined by K5.9 billion to K55.6 billion compared to the preceding six months ending December 2019.
Consequently, outstanding pension contributions rose to K24.4 billion in the period under review from K20.2 billion in December 2019.
While total assets of the sector grew by 7.1 percent to K945.5 billion with investment earnings rising to K47.3 billion from K33.5 billion during the review period, these earnings dropped significantly by 35.3 percent when compared to the corresponding period in 2019.
The financial services regulator has since cautioned that in light of the Covid-19 pandemic, the risk remains high as arrears are expected to increase further.
Employers Consultative Association of Malawi (Ecam) executive director George Khaki observed that in the face of the pandemic, the business community is facing a lot of challenges which threaten employment and economic development.
While observing that employers have continued to struggle to meet statutory pension obligations, Khaki said the implementation of 16.5 percent value added tax (VAT) levied on pension administration fees this month will exert more pressure on cashflows which have been dwindling.
“It would be prudent to find solutions and implement solutions for the current challenges that we are facing in meeting pension statutory obligations rather than increasing the cost of providing pension,” he said.
Ecam, a representative body of employers, had argued that there is need to suspend the implementation of the law until consultations were undertaken and Parliament subsequently amends the Pension Act, 2010.
Malawi Congress of Trade Union (MCTU) secretary general Denis Kalekeni earlier observed that imposing VAT on pension administration fees amid Covid-19 pandemic may force the employers to default remitting pension funds.
MRA head of corporate affairs Steve Kapoloma recently said the tax collector is only implementing section 16 of the VAT Act, which deals with VAT on supply of services.
The Pension Act 2010 makes pension funds remittances mandatory and under it, employers are mandated to enroll their employees on pension scheme.
Under the law, employees 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.
