Take time to know your pension’s worth

In Malawi where a culture of saving for the rainy day is on the lower side, most people, especially those in formal employment, bank on ‘pension’ as a ready source of their post-retirement income.

During their working life, some of them may have diversified their investment portifolio into other avenues such as property and businesses, including farming.

In terms of retirement planning, most players in the long-term insurance business have also, over the years, developed innovative products to suit those in self-employment or businesses. Even those in formal employment can also embark on own retirement savings plans through Old Mutual Life Assurance, Nico Life Insurance Company, Smile Life Insurance Company and Vanguard Life Assurance Company.

‘Pension’ is widely or loosely understood to be a retirement savings plan where one saves part of their income today to use on a rainy day, especially during the “sunset” years of life.

Sadly, if trends among many employers as reported by the Reserve Bank of Malawi (RBM) are anything to go by, many employees are destined for a raw deal in as far as pensions are concerned.

The other day, The Nation Business News section carried yet another gloomy headline ‘Firms in K27bn pension arrears, says RBM’. The story said pension remittance arrears have gone up from K16 billion in September 2019 to K27 billion now, thereby putting at risk hopes for a happy retirement by many employees.

RBM principal examiner for pension regulation Peter Kambalame is on record as having said that in 2018 the arrears stood at K13 billion. This time the growing arrears are attributed to a poor or harsh operating environment worsened by the impact of coronavirus; hence, many employers not remitting the contributions from their employees raised through at-source deductions.

The direct effect of non-remittance of pension contributions by an employer is that it eats into potential savings for the rainy day either after one retires from employment contract or indeed quits or gets fired. There will be no access to their money because employers are keeping their money. To quote Kambalame, non-remittance of pension deductions is like “stealing from employees”.

The Pension Act of 2010 mandates employers to deduct from gross salary five percent and remit to pension fund managers alongside the employer’s contribution of 10 percent. This makes it 15 percent.

Under the Pension Act of 2010, members are required to be equipped with information that will empower them to know about their pension arrangement. The individuals are also required to closely follow or monitor how their pensions are being managed; hence, be better prepared for retirement.

Courtesy of feedback I received on an earlier write-up on pensions, employees or pension fund members should have a better understanding of the employers’ obligations in a pension scheme.

The employers’ obligations include:

(a). Paying correct contributions at the right time. Failure to do this can have a negative impact on the pension benefit levels that any member can attain. Members need to have in place a process of checking this.

(b). Maintaining a life insurance policy: minimum cover one x annual pensionable emoluments.

(c). For those who have been in employment prior to June 1 2011, employers should have calculated severance liability to May 30 2011, compare this with the pension benefit available at the time (i.e. if the employer had a pension arrangement).

(d). If the pension benefit (employer contribution are less than the severance liability) the employer needed to contribute into the pension fund the balance. This can be done over a period, but there is interest that the employer shoulders.

Pension fund members also have the right to information. For instance, the Pension Act of 2010 requires each member to be provided information prior to joining the fund and at least once every six months. The information includes status of one’s contributions and benefits at a given time.

Yet another critical area in the management of your pension is the nomination of beneficiaries in case of death before pension benefits are accessed by the member.

The law provides for redress as well where members feel they are getting a raw deal.

Be wise, be vigilant and be informed. Get to know your pension’s worth and status. Make hay while the sun shines!