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Pension arrears soar to K27.5 billion

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Pension arrears continue to accumulate, seen at K27.5 billion as at December 31 2021, up from K22.9 billion in June, figures from the Reserve Bank of Malawi (RBM) show.

This shows that within the six months period under review, which coincided with the peak of the Covid pandemic, the arrears grew by K4.6 billion.

Experts have been attributing the scenario to the pandemic which has affected business operations.

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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.

Despite indicating that they have been deducting the pension money from employers, the money is not remitted to the fund manager.

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This prompted RBM to take drastic action on the defaulters.

But in its Financial Stability Report issued on Friday, RBM attests that the longstanding concern of delays in pension remittance was further exacerbated by the Covid pandemic, which adversely affected the financial position of a number of contributing employers.

However, the report holds that total assets of the sector grew significantly mainly owing to the sharp rise in investment income as the stock market, where the significant proportion of pension funds are invested, closed the year with a bullish performance, and also due to growth in pension contributions.

“The major concern for the sector remained the resurgent pension contribution arrears and prolonged effects of the Covid pandemic on employers. Total assets for the sector grew substantially by K210.4 billion in the last half of 2021, compared to the K59.8 billion growth in the first half. Thus, total assets as at December 2021 stood at K1.3 trillion from K1.1trillion in June 2021.

“Pension contributions collected during the second half of the year amounted to K75.5 billion, bringing the total collections to K142 billion for 2021. While both retirement and non-retirement withdrawals rose during the period, there was a sharp rise in non-retirement withdrawals to K56.9 billion from K32.7 billion, the majority of which emanated from unemployment claims which increased to K28.7 billion from K13.7 billion in June 2021,” the report reads.

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

In an interview Monday, Employers Association of Malawi (Ecam) Executive Director George Khaki conceded that there are some employers that are struggling to gain ground in the aftermath of the pandemic, hence the rise in arrears.

“We encourage our members to engage RBM on their financial status and find an amicable solution to settling their contribution arrears at the same time ensuring that their current obligations are met. We also know that there are some organisations that were not largely affected by Covid and we have agreed with RBM to take them to task,” Khaki said.

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

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

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