By Kingsley Jassi
At a return rate of 32.6 percent, pension funds’ investments appear to be lucrative in a troubled economy but this is only at face value as much of the returns are eroded by inflation, experts have observed.
Reserve Bank of Malawi (RBM), through its annual financial report has urged the industry to be more innovative to protect the value of the funds while experts call for incremental payouts to pensioners if pension savings are to serve the purpose upon maturity.
With assets at K3.5 trillion, the total investment portfolio of K3.4 trillion represents 98.8 percent of the total assets but the investment profile appears to be highly concentrated.
These investments brought income worth K981.1 billion in 2024 and majority of such returns, at about K650 billion, are unrealised gains from listed equity while interest income totaled K270 billion while dividends income were K47.9 billion.
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“Over the long term the sector has maintained strong performance with annualised three year average return of 35 percent, outperforming an average inflation rate of 27.3 percent,” the report reads.
With inflation climbing back towards 30 percent this year, and the investment return declining, there is a risk of investment return rate being lower than inflation and experts call for diversification of investment portfolio.
“The industry’s investments are concentrated in government securities because such investments are considered safe. But they need to take some level of risks and invest in Greenfield, of course they shouldn’t do that blindly there have to be safeguards,” one expert, Ferdinand Mchacha said.
He suggested agriculture, tourism and mining as potential investment areas on a long term path, taking advantage of the ATMM strategy that already provides incentives and other government support.
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“There are young pensioners who are not expected to retire soon. Their savings should be classified for long term investments and that’s how the economy can benefit more from the industry. It’s just a matter of balancing the risk profile,” he explained.
Mchacha further said with the pension industry now holding most of the liquidity from the economy, it is a loss of opportunity to not channel such resources for greenfield investment that should drive economic growth.
Agreeing with Mchacha, another expert, Lesley Mkandawire said the pension companies appear to be more risk averse than necessary, missing out on high return investment opportunities existing in the economy.
“Of course, they say the higher the risk the higher the returns but our pension companies should benchmark with their counterparts in the neighboring countries where pension companies own most of the investments. We need to see them taking that direction,” he said.
