The country’s pension assets rose to K2.3 trillion in the second quarter of 2023 from K1.9 trillion in the first quarter, the latest Reserve Bank of Malawi (RBM) Financial Stability Report has shown.
Pension funds’ assets are assets bought with contributions to a pension plan for the exclusive purpose of financing pension plan benefits.
The June 2023 Financial Stability Report released on Tuesday says the pension sector recorded growth in both pension contributions and investment income during the first six months of the year to June 2023, with growth in total assets seen at K0.7 trillion compared to K112.1 billion as at June 2022.
“Total investment income rose sharply to K587.4 billion from K289.7 billion recorded in December 2022. Unrealised gains alone accounted for 84 percent of the total investment income and notably jumped to K491.7 billion from K174.9 billion in March 2023 and K180.1 billion as at December 2022, owing to a bullish performance of the equities market.
“Pension contributions increased to K93.4 billion from K78.4 billion in the previous corresponding period. This is reflective of an increase in membership to the national pension scheme to 572,579 in June 2023 from 542,223 in December 2022 and 532,901 recorded in June 2022,” the report reads.
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RBM, however, notes that contribution arrears persisted, amounting to K31.1 billion, compared to K23 billion in December 2022.
The report further notes that investment assets of the pension sector were largely skewed towards listed equities and government securities at 60 percent and 25 percent, respectively.
In nominal values, listed equities amounted to K1.3 trillion, while government securities amounted to K564.4 billion as at the review period.
Other investment asset classes representing the remaining 15 percent included proportions in property, unlisted equity, unlisted debt, cash, fixed deposits and other investments.
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According to the report, inflows from pension contributions were adequate to offset outflows from benefit pay-outs, hence maintaining a positive net member flow position during the review period.
RBM was, however, quick to note that, going forward, liquidity risk is most likely to elevate due to the newly promulgated Pension Act 2023, which has introduced early access to a maximum of 50 percent of pension benefits within five years of retirement; and has reduced the waiting period on early payment of benefits from six months to three months.
The bank further notes that persistent growth in contribution arrears continued to expose the sector to credit risk.
According to the report, the government and parastatals accounted for 54 percent of the total contribution arrears. The central bank says the trend is expected to remain high given the adverse forecast on the macroeconomic environment.
“Concentrations in listed equity and money market instruments were still evident. Thus, volatility in equity prices continued to pose threats to the industry.
“For some pension funds, lack of alternative investment avenues delayed asset diversification while other pension funds are yet to spread into all of the available investment asset classes and in line with investment policies,” the report says.
Speaking in February at the National Development Conference, Old Mutual Malawi Group Managing Director Edith Jiya said the first 10-year Malawi Implementation Plan (MIP-1) could benefit from the ever-growing pension funds.
Jiya said currently the government is already tapping into pension funds, which have some exposure in the Treasury Bill and bonds market.
Jiya said for Malawi to have sustainable economic development, the country needs a much focused plan on how it ultilises the pension funds.
She observed that on the part of private sector players, they need partnerships with the public sector to help them in de-risking some of the projects.
