What do we know about pensions?

Pension is one of the most overused terms in our society regardless of whether one is in formal employment or self-employed. Even some of our illiterate folks know about pension. They knew about pensions from time immemorial.

To many, pension refers to a sum of money an employer pays an employee for life after an employment contract. Many of our old folks used to and some still get their pension every 14th day of the month. Technically, pension is a regular payment a person gets from a pension fund or investment fund after retirement or his/her working life.

In Malawi, until July 1 2011 when the new Pensions Act came into effect to make pensions mandatory, very few employers had pension schemes let alone funds.

This development made some people, especially those who were not on any pension scheme during their years of employment, turn destitute sooner than they left their former employers’ premises.

In some cases, those who were on pension schemes, especially the youthful ones, abused or used the pension funds as a “recapitalisation” avenue where they would quit jobs at will simply to encash their pension contributions and sort out immediate financial woes before starting afresh in a new job with the same employer or a different one altogether.

This was unfortunate, to say the least, as, at 35 years of age, for example, you do not need to draw your retirement funds.

Investment advisers usually say that investment is spending less today and keeping some for the rainy day. In simple terms, what they mean is that we should learn to plan for our retirement.

The other day I was privileged to be in a meeting where a consultant, a respected professor in economics, asked us: “What do you know about pensions?” There was laughter. From this response, one easily concluded that many of us were ignorant.

The professor said in one of his research findings, some respondents said they understood a pension scheme as an arrangement where government or an employer contributes funds to pay an employee upon retirement. He said some said they had never heard about the pension scheme and a third of people in urban areas, in formal employment for that matter, thought pensions were voluntary.

Under the revised Pensions Act, pensions are a non-negotiable arrangement between an employer and employee. It is mandatory for employers to put their employees on a pension scheme.

Mandatory pension schemes are good for the economy as they are also good for employees’ future. Pension funds have helped develop other economies. Locally, we have seen Old Mutual Plc and Nico Life Insurance Company, for example, putting up some infrastructure such as shopping malls and multi-storey office complexes using pension funds. Personally, as an Old Mutual policyholder, I feel a sense of pride every time I walk into Umoyo House or Unit House in Blantyre and read the inscription at the entrance: “This building is owned by shareholders and policyholders of Old Mutual.”

However, like every new scheme, there were several challenges threatening implementation of the Pensions Act. For example, I found the tracking system for employers who do not remit deductions to be weak. Today, employers owe the pension funds billions of kwacha in unremitted pension deductions.

In its maiden days, the implementation of the new law sparked several strikes and demotivated several employees who could no longer access bank loans, for example, as the law does not allow pensions to be used as collateral. Many employers do not have the cash-flow to provide alternative loans either.

Whereas in the past one could “instantly” get their pension contributions upon termination of an employment contract, since July 2011, this is not possible. To access your contributions you need to show proof of hardship or that you are yet to find another source of income to carry on.

This is a challenge in an economy such as Malawi’s where very few would “survive” even a month without an income.

These are some of the grey areas requiring clarification to make the pension laws achieve desirable results.

Employees are a major stakeholder in the pension industry; hence, I would urge them to make follow ups on remittances of their deductions and seek redress wherever they feel they are getting a raw deal. Pension contributions are in preparation for a better tomorrow.

In this regard, the registrar of pension funds needs to have teeth to bite.

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