RBM warns on early pension withdrawals
The Reserve Bank of Malawi (RBM) has warned that early pension fund withdrawals by financially-stressed employees may fuel old age poverty in the near future as people will not have adequate monthly annuities to withdraw.
Speaking during the commencement of the Pension Awareness Week in Lilongwe, RBM Governor Wilson Banda said lack of knowledge on pension has resulted in the increase in early withdrawals in the recent years.
He said that some of the withdrawals have been attributed to the impact of Covid-19, which led to staff retrenchments.
Banda said: “For instance, a total number of 7 740 early pension withdrawals were paid in the quarter ending June 2021. The early pension withdrawals decrease pension savings, which result in less pensions during retirement and the concerned members will be vulnerable to old age poverty.”
He also asked employers to religiously remit pension funds contributions for their workers, saying based on the results of surveillances carried out by his office, there are 891 employers out of 3 100 employers in the National Pension Scheme that accumulated pension contribution arrears of K22.9 billion as at 30 June 2021.
Banda said this shows that compliance with the Pension Act remains a challenge for a lot of employers, particularly with regard to remittance of pension contributions.
“I am in the process of commencing legal action against employers that did not comply with my administrative penalty to remit pension contribution arrears to the trustees within 21 days,” he said.
The Pension Act states that pension contributions must be remitted to the trustees of a pension fund no later than 14 days after the end of the month in which the liability to make the contributions arose.
In his remarks, Employers Consultative Association of Malawi (Ecam) president Buxton Kayuni said pension is one of the few social protection schemes available in Malawi.
He said any erosion of pension will affect economic growth as envisioned in the Malawi 2063 Agenda.
Kayuni said in the current Pensions Act review debate, Ecam was alarmed by the proposal to increase the lump sum payout to 70 percent.
He noted that retired employees currently complain that the monthly pensions were not enough to meet their needs and warned the situation could worsen if the proposed ratios were to pass.
Kayuni said: “Such a position is not supported by evidence, it will compromise the sustainability of the pension sector in Malawi and this will erode income security for pensioners who by their age many of them will become vulnerable.”
In his statement, Malawi Congress of Trade Unions secretary general Madalitso Njolomole asked employers to remit the arrears to avoid affecting those retiring from work.
On the review of the Pensions Act, he said that due to the adverse effects of Covid-19, a majority of workers are opting to withdraw their pension funds because of economic hardships. He said the waiting period after one loses employment should be reduced from the current six months.
Surveys conducted on Financial Literacy and Consumer Protection (Baseline and Follow up Surveys) in 2013 and 2018, have shown that most Malawians, including those with tertiary education and in formal employment, lack knowledge on what pension is, how it works and what are the requirements as per the Pension Act.
The Pension Awareness Week aims at promoting awareness of the importance of saving for retirement and the role of various stakeholders under the Pension Act, 2010 in order to increase pension coverage and compliance with pension regulations.
This year’s Pension Awareness Week is being held under the theme ‘Yes to Pension, No to Tension’.
