Why employees should care about pension

In the past week, Reserve Bank of Malawi (RBM) Governor Dalitso Kabambe, in his capacity as the Registrar of Financial Institutions, published a whopping list of 610 private sector companies owing pension funds K6.2 billion in pension remittances arrears for their employees.

There are several reasons the affected companies could be struggling to comply with provisions of the Section 61 of the Pension Act (2010) requiring them to remit to a trustee of a pension fund both employer and employee pension contributions within 14 days from the date of deductions. The prevailing economic environment in the country, where businesses are barely surviving, is one possible factor.

The defaulters have since been given up to November 30 2019 to make their remittances or risk fines. The fines include penalty interest based on the prevailing RBM policy rate plus 10 percent for the duration the arrears have been outstanding.

While RBM, as the referee, is playing its part in enforcing compliance in terms of remittances, the onus is also on individual members of pension funds to track their contributions’ status.

Pension is one of the most common terms in our society. 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.

In technical terms, pension is a regular payment a person gets from a pension fund or investment fund after retirement or his/her working life.

I have previously shared some insights on the issue of pensions as shared to me by one avid reader who, in fact, is in the pensions industry. I feel in the wake of the prevailing developments relating to pensions, it is worth revising the input in relation to what employees need to know about pensions.

Wrote the reader: “Good morning, A very good article on your column ‘Business Unpacked’ today. I encourage you to keep writing as this is an area that is less understood by most employees and as such many are not following or getting the best out of their pension arrangements due to lack of such information.

“I would like to ask that in a future article please do consider writing on specific information that each pension fund member needs to know about their pension arrangement.

“Equipped with such information, many individuals will closely follow how their pension arrangements are being managed and be better prepared for retirement. Regards.”

The reader was generous enough to share what an employee or pension fund member should know:

“Understanding the employers’ obligations in a pension scheme

(a). To pay in the 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). Employers should maintain 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.

Right to information

“The Pension Act has provided that each member should be provided information:

1. Prior to joining the fund

2. Regularly (at least once every six months).”

With pensions, it is also critical that employees or members nominate their beneficiaries and safely keep records of the same with trustees. Beneficiary nominations should be current. In other words, they should be reviewed regularly by the member to avoid situations where the benefits are distributed to people that should otherwise not have benefited from the pension.

Despite the challenges in terms of remittances, there is still some reason to smile about the pensions as, according to an RBM June 2019 Financial Stability Report, assets in the pensions sector increased by 11.8 percent to K801.1 billion in the six months ended June 30 2019. Pension funds are also expected to hit K1.1 trillion by 2020. Yet another success is the growth in the number of people on pension from 102 505 when the Pensions Act came into effect to 422 993 as at March 31 2019. The number of companies managing pensions has also increased from three to six.