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Pension fund withdrawals up

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SINGO—The development is retrogressive

Early withdrawals of pension funds have grown by K3.9 billion within two years from K9.5 billion in 2020 to K13.4 billion in June 2022, figures from the Reserve Bank of Malawi (RBM) show.

Pension funds withdrawal is deemed early when someone has drawn 40 percent of their pension account six months after being out of the job market as stipulated by the law.

RBM Principal Examiner for Pensions and Insurance Shamiso Tsonga last week attributed the rise to an increase in job losses during the period under review.

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She said the effects of the Covid pandemic affected most businesses and the economy at large.

“Some employers were restructuring, some were downsizing and a number of people were laid off; so, those ones have been coming forward to access some of their pension benefits as permitted under the Pensions Act,” she said.

Life Insurance and Pension Association of Malawi President Stain Singo said the situation is a reflection of a shrinking economy which is leading to job losses.

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Singo added that the situation impacts pension fund administrators because it shrinks their portfolio and reduces opportunities of investments because a big chunk of the Malawi Stock Exchange is consumed by pension funds.

“The impact goes a long way because even in the Malawi 2063 blueprint, one of the goals is to be sourcing investment money in infrastructure and other developments locally; so, with these early withdrawals, such funds will be diminishing,” he added.

Currently, pension funds stand at K1.4 trillion as at June this year with a membership of 532, 789 people, which is a growth from 73,837 members by 2011.

Recent figures from the central bank show that pension arrears grew by K5 billion within a year to K27.9 billion by June this year from K22.9 billion.

Despite the developments, the pension sector has registered growth over the years, with funds hitting K1.4 trillion by June this year.

It was further revealed that members of the pension sector have grown to 532,789 by June this year from 73,837 people 11 years ago.

Employers have been lamenting the volatility of the economy, which has affected performance of most businesses in the country.

The Pension Act 2010 makes pension fund remittances mandatory but our findings show most employers continue 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 to have deducted the pension monies from employers, the money is not remitted to the fund manager.

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