Pension obligations choke employers

Employers Consultative Association of Malawi (Ecam) says employers are struggling to honour their pension obligations under the Pensions Act due to the challenging business environment, .

In an interview yesterday, Ecam executive director George Khaki said the situaiton is also partly due to the additional fees incurred on pension administration.

He said: “Pension administration fees are VAT [value added tax] taxed at the rate of 16.5 percent. Because of the current economic environment, employers are struggling to honour their obligations.

“This hurts the working population and is a setback on the measures that government is putting in place to enhance social protection.”

Khaki said the removal of the tax on pension administration fees will enhance compliance with pension remittances and enable the industry to contribute to social protection in Malawi as envisaged in the Malawi 2063, the country’s long-term development plan.

The VAT levied on pension administration fees payable by firms or organisations came into effect on September 1 2020.

All along, pension business was undertaken by life insurance companies and pension contributions were paid together with life insurance premiums as a percentage of the payroll together with pensions administration fees.

But following the enactment of the Pension Act, life insurance business was separated from pension administration operations to comply with the Act.

Ecam data shows that as at September 2022, pension remittance arrears stood at K28.7 billion.

This is despite the Pensions Act making pension fund remittances mandatory where employers are mandated to enrol their employees on a pension scheme.

Under the law, employees contribute a minimum rate of five percent while employers are mandated to remit 10 percent of the employees’ monthly gross salary which adds up to 15 percent monthly.

Malawi Congress of Trade Unions president Charles Kumchenga said in interview that employees are losing out on their savings when they retire or lose their jobs because pension funds they contributed at the time of employment are not available.

He said the central bank has the powers to force employers to comply with the Pensions Act, but expressed concern that it was failing to do so.

In 2021, RBM stepped up efforts to enforce timely remittance of pension contributions, which included taking legal action against employers with pension contribution arrears as well as naming and shaming.