Pension defaulting firms risk court action
Firms that continue defaulting pension deductions remittances to fund managers risk court action under the new Pensions Act of 2023, the Reserve Bank of Malawi (RBM) has said.
RBM Chief Examiner Responsible for Life Insurance and Pension Supervision Kaluso Chihana was speaking in Lilongwe on the sidelines of an Old Mutual 2023 Trustees Awareness Conference.
As at December 2022, pension contribution arrears stood at K24 billion, according to RBM’s December 2022 Financial Stability Report.
According to Chihana, unlike the old Act which just stipulated administrative action by the Registrar of Financial Institutions, the new Act provides for prosecution of defaulting entities.
He said the new Act has mandated the Registrar of Financial Institutions, or even representative organisations of employees such as the Malawi Congress of Trade Unions, to take enforcement action or even court action.
“In terms of the enforcement measures that were there previously, they were focusing very much on administrative actions only. If you look at the sections that were providing for that, they simply said, for employers who were not complying, the Registrar should impose administrative penalties as provided for in the Financial Services Act.
“Now, the Financial Services Act only applies to financial institutions as opposed to employers. This is where we had a challenge. This time around, the new Act is clearly stipulating some of the administrative actions that can be taken and, if the employer is not complying with the administrative actions that the Registrar had imposed, then the Registrar will have the mandate to take court action on the employers” Chihana said.
Old Mutual Pension Services General Manager Taonga Manda said they organised the meeting to appraise trustees on the changes that have come about with the new Act, which has taken effect from April 1 2023.
Among other things, the new Act has reduced the waiting period on early payment of benefits from six months to three months.
The Act also provides for early access of a maximum of 50 percent of pension benefits as a lump sum any time within five years to retirement age.
The bill proposes a maximum of K150 million penalty and a custodial sentence to offending firms.
Manda said as Malawians reflect on the changes brought in by the new pension law, it is easy to get lost in the few changes that excite them and forget the bigger picture that in this life; they still face two fundamental risks of dying early or living a long life.
He said contrary to the general belief that pension is not relevant because of short life span, empirical evidence by the World Health Organisation suggests that life expectancy in Malawi is improving, currently at 65.6 years from 54.18 years in 2008, implying that the risk of living long is increasing over years.
“In this perspective, the Pension Act 2023 is an enabler to effective management of the retirement risk. We need to look at it from that perspective.
“As trustees, our duty is to remind our members that they need to prepare for the retirement risk. We need to exercise, in relation to all matters affecting the fund; the same degree of care, skill and diligence as an ordinary prudent person would exercise in dealing with property of another for whom the person felt morally bound to provide,” Manda said.
He added that trustees also need to obtain skilled advice to assist in instances where the complexity of issues is such that an ordinary prudent person would not be expected to make sound decisions taking all facts into account.
Office of the Ombudsman Executive Secretary Alinafe Malunga described the meeting as an eye-opener, saying it has helped the participants appreciate advantages and the challenges that come along with the new Pensions Act.
