Malawi’s pensions sector recorded strong growth in 2024, with the fund rising to K3.8 trillion, a 29.7 percent increase from 2023, according to the Financial Institutions Annual Report 2024.
The fund now accounts for 28.9 percent of the country’s gross domestic product (GDP) at K19 trillion, making the pension sector one of the largest sources of long-term domestic capital.
Yet beneath the headline growth, serious challenges persist, according to the report, with pension contribution arrears standing at K28.5 billion.
The Reserve Bank of Malawi (RBM) says the arrears are a persistent risk that undermine both worker security and stability of the system.
Membership remains limited, with only 543 309 registered contributors out of an employed population of more than four million, reflecting low employer compliance and weak enforcement, according to the report.
RBM has pledged to tighten supervision and enforcement to ensure employers remit contributions on time.
It has also urged pension administrators to strengthen governance and improve efficiency to protect members’ savings.
The report shows that pension funds are increasingly being channelled into government securities, equities and other long-term assets.
By end-2024, nearly half of total fund or about 49 percent was invested in government securities, according tothe report.
It further indicates that 19 percent was allocated to equities, supporting the 16-counter Malawi Stock Exchange and giving companies access to long-term capital.
The remainder was spread across bank deposits, property and offshore assets to diversify risk and preserve value.
Money market analyst Kondwani Makwakwa said in an interview on Sunday that the arrears are not only eroding worker confidence, but also weakening the ability of funds to mobilise capital.
He said: “When employers don’t submit pension contributions on time, it really shakes employees’ confidence and affects the benefits they are supposed to get.
“Pension funds also end up with less money to work with, which limits capital mobilisation, reduces demand for bonds and development projects and can even create instability in the financial system.”
Makwakwa said while RBM should enforce compliance, penalties need to be phased.
“Big fines could make struggling businesses worse, maybe causing them to lay off workers or even close.,” he said.
In an interview, economist Steve M’modzi argued that the industry’s growth highlights the country’s failure to fully harness local wealth for development.
He said: “Malawi appears trapped in the narrative that it is a poor country. These funds now need to be put into real productive sectors that can generate extra income while improving people’s welfare.
“For example, tackling food insecurity through investments in agro-processing would cut food-driven inflation and create resilience.”
Mmodzi further suggested pension funds could also spur innovation in health and skills development.
“Excess accumulation of funds can create challenges if not properly managed, such as the costs of holding idle money and risks of inflation,” he said.
Economist Lesley Mkandawire is quoted as having said there is need for more pension resources to be invested in infrastructure.
He said real estate is one area that should be considered.
RBM Governor Macdonald Mafuta-Mwale earlier said the country needs to utilise pension savings to transform the economy, adding that the central bank will work with the industry to diversify investments in the real sector.
He said modalities are being put in place to allow off-shore investment by the pension industry to maximise investment opportunities.
The Pension Act 2023 rolled out in March 2023, replacing the Pension Act 2011. The new law has reformed several areas, including governance of pension funds, early access of benefits, benefit design and administration.
