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Pension assets grow

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By William Kumwembe:

Pension assets went up by 34.6 percent in 2018 to close the year at K716.5 billion, Reserve Bank of Malawi (RBM) figures show.

In its 2018 Financial Institutions Supervision Annual Report issued last week, RBM attributes the rise to a growth in investment income and substantial growth in contributions following the registration of the Public Service Pension Fund.

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The fund comprised 77,910 members and registered accumulated assets of K28.8 billion during 2018.

In the year under review, annual pension contributions also went up to K98.3 billion from K62.5 billion in 2017, mainly due to growth in membership and general increases in pensionable emoluments.

Membership of the national pension scheme increased to 406,068 in 2018 from 304,256 in 2017, largely following the inclusion of the newly registered pension funds into the industry.

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However, pension contribution arrears rose to K13.1 billion from K9.9 billion in 2017, equivalent to 1.8 percent of total assets. The rise was mainly attributed to contribution arrears amounting to K2.8 billion by newly registered pension funds.

Annual contributions collected have increased from K8.6 billion in 2011.

Passing of the Pensions Act in 2011 has seen a substantial rise in pension remittance.

“The pen s ion sec t o r continued to register growth since the introduction of mandatory pension regime.

“During 2018, assets grew substantially on account of an increase in contributions and investment income. The Public Service Pension Fund was registered as a stand-alone restricted pension fund and its existence significantly affected the industry due to the size of its assets,” reads part of the RBM report.

RBM projects that, by end 2019, pension assets would swell to K894 billion and increase further to K1.1 trillion by the end of 2020.

However, RBM Governor, Dalitso Kabambe, recently lamented low flow of funds towards infrastructure development.

Kabambe said, contrary to what is obtaining in the region and beyond, in Malawi, about 45 percent of the funds have been invested in shares listed on the Malawi Stock Exchange.

A further 29.6 percent has been invested in Malawi Government Debt Securities, with the balance of 10 percent invested in fixed deposits.

“This means that the bulk of our pension funds have been invested in short term instruments which are prone and vulnerable to short-term interest rate movements as well as share price fluctuations. This is not what pension funds are meant for as these are long-term liabilities,” Kabambe said.

Old Mutual Group Chief Executive Officer, Edith Jiya, conceded that more should be done in asset allocation.

Across the world, pension funds perform important economic 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.

The Organisation for Economic Co-operation and Development indicated that alternative investments had gained ground world over, with the percentage of assets committed to alternative investments reaching 51.3 percent in South Africa, 51.9 percent in Tanzania and 40.3 percent in Zambia, by 2017.

In Tanzania and Zambia, land and buildings alone constituted 24 percent and 21 percent, respectively.

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