Contributory pension to double in five years—Treasury

Ministry of Finance, Economic Planning and Development says it wants to increase coverage of contributory pension from eight percent to 15 percent of the workforce by 2021 by creating viable, long term investment avenues for growing reserves especially from the pension funds promoted.

The public service pension scheme is a defined benefit with unfunded liabilities estimated at 60 percent of the gross domestic product (GDP) in 2013. The Government is yet to roll out its pension scheme to defined contribution.

The country has a mandatory contributory national pension scheme that covers the formal sector which is estimated at 650 000 workers as at 2015.

However, as at December 2015, only 217 000 workers were on contributory pension scheme.

In its five-year Financial Sector Development Strategy II (2017-2018), Treasury said it hopes to make substantial reforms in public service pension scheme to sustain fiscal obligations, establish an independent pension regulator and review the regulatory framework.

“The current regulation covers only the formal sector. Therefore, the government shall review the regulatory framework to allow for the provision of voluntary personal pension to cover the informal sector which has the largest workforce. Among others, the government shall consider introducing incentives and measures that will encourage individuals to have personal pension plans.

“Issuance of long term debt by government shall issue long term debt instruments such as infrastructure bonds to provide an avenue for pension fund investments and to promote infrastructure development in the country,” reads the report in part.

The development comes amid growing concern with the priority given to matters of insurance and pension in decision making of individuals and households despite their significance.

Reserve Bank of Malawi (RBM) Governor Dalitso Kabambe recently said this is reflected in the low numbers of people with pensions at 304 000 only and low uptake of insurance products at 1.4 percent insurance penetration.

“The consequences are that many people find it hard to live a better life after retirement and that when uninsured assets of people are caught up in problems, people find it hard to deal with such matters. The week is therefore meant to reflect on these matters,” he said.

Nico Life Insurance Company Limited, one of the pension fund managers, earlier complained that some companies are yet to remit about K7.4 billion in pension contribution as of November 2017.

The firm’s chief executive officer Eric Chapola said they receive complaints and inquiries on administration of pension funds and some employers are suing companies over pension.