Introduction to Pension Act—Part 2

The Pensions Act 2023 stipulates requirements for receiving pension payments, for instance, while retiring, whether it is through conventional retirement, years of service, or illness.

The typical retirement age is between 50 and 70, or as determined by the employer’s or the fund’s requirements. The member may elect to access the entire lump amount if the balance accumulated is below the threshold imposed by the Registrar for a certain age.

The member may, however, obtain up to 50 percent of cumulative benefits as a lump sum if the total accumulated exceeds the limit imposed by the registrar.

Such a member must purchase an annuity, set up a scheduled withdrawal, or do both with the remaining funds.

If the member chooses, they may access up to 50 percent of their benefits within five years of retirement. Given that retirement benefits are being collected early, caution is strongly advised.

If used, the lump amount at retirement will be restricted to a percentage of the contributions and earnings made from the time of access until retirement.

If the employer’s terms provide that the retirement age is 50, for instance, an employee may begin receiving benefits at age 45 and begin receiving the five-year portion of benefits at age 50.

The Act also enables a member to access pension benefits when the individual is permanently relocating outside of Malawi. When approval is granted, this member has access to up to 50 percent of the funds; the remaining amount is accessible 12 months later.

Receiving pension benefits is also contingent upon the member having left the employer’s job for a reason other than the ones mentioned above.

About this, the member must have been jobless for over three months. A member in this category has access to both their personal contributions and investment returns. The member has access to the entire lump sum if it is under K500,000.

What happens if a member dies? Pension accounts are paid out in accordance with the nomination form at death. The pension account is made up of accrued pension benefits and life insurance coverage at the time of death.

Unless there is a minor, beneficiaries receive lump sum payments. A trustee holds money belonging to minors; the guardian withdraws a little amount each month for the minor’s support, and the remainder is given to the minor when he or she achieves the age of majority, which is 18 years old.

Within 30 days of joining, nomination forms must be delivered to the trustee. Only those who are financially reliant on the member may be nominated, including the member’s spouse, child, and close relatives.

If these categories do not apply, any other individual may be nominated. Every two years, the member is required to examine the nomination.

The nominations form must be signed in front of the fund trustee (or, if the trustee is a corporation, a director or officer of the trustee), the commissioner of oaths, or any individual designated by law for the purposes of this section.

If the nomination was submitted before a divorce or subsequent marriage, it can also be deemed invalid.

Under the required pension plan, there are three types of pension funds: unrestricted, restricted stand-alone and restricted self-administered.

Unrestricted pension funds are established by pension services companies, corporate trustees, diverse employers, and individual participants; restricted stand-alone pension funds are overseen by a group of individual trustees or a designated corporate trustee.

There is also a voluntary pension programme now thanks to the Pension Act 2023. In this plan, there are two different kinds of pension funds: provident funds and voluntary personal pension funds.

Licensed pension services providers establish voluntary personal pension funds to offer savings and retirement benefits.

There are no limitations on the amount or timing of contributions under such a fund, and participation is entirely optional.

However, the company could also provide additional benefits for a worker. In such a case, the employer is expected to assist payment within 14 days of deduction if they choose to do so.

The optional personal pension fund receives contributions split as follows: 40 percent goes to a personal savings subaccount and 60 percent goes to a pension savings subaccount.

Section 18 of the Act provides for conditions for access to benefits under voluntary personal pension fund.

For instance, part or all benefits under savings sub account can be accessed if member contributes for a period of more than five years.

Benefits in pension sub account can only to be accessed at retirement as a lump sum. Total benefits if not accessed any benefits for more than 10 years.

A lump sum payment is accessible to beneficiaries in case of death. However, benefits under the voluntary personal pension fund cannot be used to buy pension products (annuity or programmed withdrawal).

Provident fund is another component of voluntary pension scheme. This is set up by employers over and above the mandatory pension scheme.

Under this scheme, benefits are paid to a member as a lump sum at retirement/ upon meeting conditions under Section 87. Benefits are paid to beneficiaries directly by the employer upon death of member.