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Industry laments pension defaulters

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By William Kumwembe

Continued accumulation of pension arrears due to increased default rate has scared the insurance industry in the country.

In an ideal scenario, a sound pension industry positively impacts the economy as the funds are channelled into various sectors through the financial sector.

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But in the past two years, the default rate by employees has been on an upwards spiral with recent figures from the Reserve Bank of Malawi (RBM) showing that employers are yet to remit about K26.9 billion in pension money to fund managers.

The Pension Act 2010 makes pension fund remittances mandatory but our findings show that over 1, 027 employers continued to face challenges to remit pension funds.

The pension law dictates that employees contribute a minimum of five percent while employers remit 10 percent of the employees’ monthly gross salary.

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Despite indicating to have deducted the pension monies from employers, the money are not remitted to the fund manager.

Most have been attributing the scenario to the Covid pandemic, which has affected business operations.

In an attempt to address the problem, the central bank engaged employees, a move that has not yielded the desired fruit as the default rate remains elevated.

This has prompted RBM to take drastic action on the defaulters.

In an interview, RBM Governor Wilson Banda said the central bank was moving towards addressing the problem once and for all.

“It is illegal. The law is very clear that as soon as they get these funds from the ultimate beneficiaries, they are required by law to remit to fund managers within a specified period.

“If they don’t, then it is in violation of the law. And we are going ahead to penalise them and, where necessary, we will take them to court,” Banda said.

Industry players say continued delays in remitting the funds have a bearing on employees’ account through less investment incomes.

The law stipulates that the remittances be made within 14 days after the end of the month.

In an interview, Life Insurance and Pension Association of Malawi (Lipam) President Stain Singo rated the situation as detrimental.

He said, if unchecked, it would have a huge bearing on the sector’s contribution to the economy.

“This is not helping the e m p l o y e e s . Again, these are c o n t r i b u t i o n s which, if received in good time, the administrators would have invested in more other sectors, thereby creating a pool of funds for investment in the economy,” Singo said.

Available figures show that, in Malawi, about 45 percent of pension funds were invested in shares listed on the Malawi Stock Exchange.

A further 29.6 percent was invested in Malawi Government Debt Securities, with the balance invested in fixed deposits.

Across the world, pension funds perform important e c o n o m i c functions, such as mobilising and managing savings, providing income stability, making labour markets more efficient and providing exposure to systemic risk in the financial markets.

Assets in the pension industry (life and pension) were seen at K1.3 trillion.

On his part, Employers Consultative Association of Malawi Executive Director George Khaki faulted the situation to pangs of the Covid pandemic.

“It is worrying that employees are failing to remit pension arrears but we need to discern because, while for some it might be deliberate, most are victims of the Covid pandemic,” he said.

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