Introduction to Pension Act 2023 – Part I

An average Malawian’s life expectancy was 45.89 in 2000. It increased to 63.7 in 2020 and 65.18 in 2022. The average age is currently 65.62. Why does this matter?

Well, due to improvements in healthcare and living conditions, retirees are now living longer and, as a result, need money for a longer length of time.

It is well known that when one becomes older, they require greater help. But do we really need pension?

During their retirement year, people might feel secure financially and mentally thanks to pensions. It aids in paying for necessities of life, medical costs and unforeseen expenses.

Pension provides long-term protection for your dependents in the case of your untimely death.

How did the Pension Act in Malawi come about? Well, prior to June 2011, pension plans could be established at the employer’s choice. Employer discretion could primarily hurt the employee.

Later in 2010, the Pension Bill was approved by Parliament and an Occupational Pension Plan became mandatory. This became active in June 2011 as the Pensions Act (2011) of the Laws of Malawi.

The Pension Act of 2023 establishes a mandatory and optional pension system, among others. It went into effect on April 1, 2023. On mandatory pension system, the Act provides for the National Pension Fund as well as Other Registered Pension Funds.

On the other hand, on optional pensions system, the Act provides for provident funds and voluntary personal pension funds.

The Pension law aims to accomplish a number of things. These include ensuring that every employer offers pension to their employees and that every employee in Malawi receives retirement and death benefits as and when due.

The law also aims to encourage safety, soundness and wise management of pension funds and to encourage national savings for economic development. The Pension Act of 2023 has one more goal, which is to encourage retirement savings made voluntarily.

All employers and employees in Malawi must abide by the Act. The Act does not, however, apply to the following groups: domestic workers, seasonal workers, members of the legislature, staffers with temporary work permits, and anyone taking part in voluntary personal pension funds.

The mandatory pension plan imposes a number of requirements on the employer. The employer must, among other things, create provisions for employees to enroll in pension plans, offer life insurance, pay a minimum of 10 percent of pensionable income, deduct a minimum of five percent of pensionable income, remit contributions 14 days after they became due and transfer severance due benefits when appropriate.

Businesses are free to contribute more than the required amount in order to provide better pensions.

Employers are free to pay employee contributions. Employer contribution rates cannot be decreased, though.

Additional responsibilities of the employer under the Act include: submitting the necessary information to trustees and pension administrators; nominating employer representative trustees; completing the necessary application forms for benefit claims and helping to identify members; and promptly calculating, deducting, and paying the relevant contributions with the correct accompanying schedules to administrators.

Employers are no longer required by the Pension Act to pay the cost of the pension fund for their employees. Employers shall not, however, discriminate against workers when they seek pension benefits in situations including unpaid debts and fraudulent termination.

The Act imposes financial penalties when employers fail to comply. To make up for the lost investment revenue, late payments, for example, are subject to a penalty interest charge equal to the bank rate plus 10 percent for the time the contribution was overdue.

Moreover, the same may result in pecuniary penalties of up to K100 million or an amount equal to the profit made or loss incurred.

Additional repercussions of employers’ non-compliance include delayed pension benefit payments, workplace dissatisfaction, credibility loss, a threat to the sustainability of pension funds and denial of employees’ legal entitlement to be included in the system.

Employees are granted a number of rights under this Act, including the ability to choose a pension fund, make additional voluntary pension payments, inquire about or complain about the management of the fund and have that complaint answered within 60 days.

They can also take their pension account with them when they change jobs, transfer pension benefits once every two years without providing a justification and designate beneficiaries for death benefits in the event of death.