Pension arrears hit K31.1 billion

Timely remittance of pension contributions remains a challenge for employers with K31.1 billion in pension contribution arrears still outstanding as of June this year, a development industry players say threaten the social security of employees.

Reserve Bank of Malawi (RBM) figures contained in the June 2023 Financial Stability Report show that the pension contribution arrears have risen from K23 billion reported in December 2022.

Effectively, the growth in contribution arrears, which RBM has linked to the harsh macroeconomic environment, has affected settlement of pension benefit claims as some members are forced to wait for longer periods after retiring before receiving their benefits.

 This comes despite efforts to enforce timely remittance on pension contributions by the central bank in line with the Pension Act of 2010 which makes pension fund remittances mandatory.

Malawi Congress of Trade Unions (MCTU) president Charles Kumchenga said in an interview on Thursday the development is depriving employees of their rights. He called for action from authorities.

He said: “Employees are losing out their savings when they retire or lose their jobs because pension funds they contributed are not available. We have a lot of policies on pensions, but one wonders why the same is not being implemented.

“By not remitting the pensions, employers are committing a criminal offense because they deduct the funds from employees, but fail to remit to pension fund administrators.”

Kumchenga said the central bank has the powers to task employers to comply with the Pension Funds Act, but expressed concern that it was failing.

Employers Consultative Association of Malawi (Ecam) executive director George Khaki, while indicating that the development is a reflection of the economic environment where employers are not generating enough revenues to meet their obligations, including pensions, said many are striving to abide by the law.

“In any case, we encourage employers that have challenges to discuss with their workers and the regulator and agree on a plan to make good of their peculiar situations,” he said.

Last year, RBM stepped up efforts to enforce timely remittance of pension contributions which included taking legal action against employers with pension contribution arrears.

The move by the central bank was meant to deal with non-compliant private sector and government institutions.

Meanwhile, RBM governor Wilson Banda, who is also the registrar of financial institutions, has admitted the trend in contribution arrears has continued to pose regulatory concerns, saying the registrar will penalise and prosecute defaulting employers.

He said: “The registrar will persist in engaging employers who are not remitting pension contributions as it is this area that the majority of complaints emanate from.

“The newly promulgated Pension Act 2023 has also enhanced the registrar’s powers to prosecute and has introduced stiffer penalties on defaulting employers. We conducted a nationwide campaign to raise awareness about the Pension Act 2023 and the anticipation is that things should change.”

 Meanwhile, total pension assets have almost doubled to K2.3 trillion as of June this year, up from K1.6 trillion in December 2022.  

The data further shows that government and parastatals accounted for 54 percent of the total contribution arrears.