Last month, the Reserve Bank of Malawi Governor Dalitso Kabambe, acting in his capacity as the registrar of financial institutions, published a list of 610 employers in the private sector that have not been remitting pension contributions totaling K6.2 billion to trustees.
In January, the central bank also listed 18 public sector organisations which, by October 2018, had pension arrears amounting to K5.6 billion over a six-year period.
RBM has resorted to naming and shaming as part of its efforts to enhance regulatory compliance of the Pensions Act enacted in 2010.
Under the pension law, all employers are required to put their employees on pension scheme with five percent contribution from the employee and 10 percent being the employer’s contribution of pensionable emoluments.
Exemptions include seasonal workers or tenants. The employer is mandated to remit these contributions to trustees of a pension fund within 14 days after the end of the month the liability falls due.
Employers are also required by law to provide a life policy in favour of each of their employees, with minimum benefits of one times their annual pensionable emoluments, whose benefits are issued to dependents of a deceased employee.
RBM, Ministry of Finance and Ministry of Labour are key implementers of the Pensions Act.
While these institutions are working to ensure compliance, trade unions have a crucial role to play in enforcing pension compliance.
So far, Malawi Congress of Trade Unions (MCTU) has condemned non-remittance of pension funds, threatening to drag defaulters to court to ensure workers’ rights are upheld.
In some companies, workers’ unions have taken an aggressive approach to force their employers to clear pension arrears and resume contributions. This includes the strike Agricultural Development and Marketing Corporation (Admarc) staged in May.
Trade unions have political influence and legitimacy to pursue such issues of national importance through mobilising strikes, collective bargaining ability and their consultation and contribution in policy.
It is ironic that employers owe pension trustees huge sums of funds in arrears in the presence of active trade unions.
The unions could have considered the developments in the pension industry as an opportunity to enhance their relevance and influence in the workplace by being proactive instead of being reactive.
There have been calls by Malawi Postal Corporation (MPC) Workers Union for government to pay an accumulated sum of K400 million in unpaid pension arrears.
The strikes initiated by some trade unions following revelations of noncompliant employers demonstrate their reactive approach.
The consequence of not remitting pension contributions on time is that employees lose out on interests that accrue on their pension savings and delays in receiving pension benefits upon one’s death or retirement.
It also makes it difficult for a person who has been unemployed for six continuous months to access part of the pension funds. This makes it difficult for some pension members to care for their families.
This has also perpetuated a parasitic relationship between employers and employees as the 10 percent interest that has been charged for accrued arrears cannot cover for the loss of bonuses that trustees declare annually, which in some cases have gone as far as 60 percent.
Pension investments in financial markets, such as real estate which has a multiplier effect are also adversely affected due to non-remittance of contributions. In the end, there is only one loser—the employee. This is why workers unions need to be proactive rather than reactive as they have been.