RBM approves PCL Group Pension Fund
Buoyed by the sheer need to make life easy for people who worked so hard all their lives, the Registrar of Financial Institutions, Reserve Bank of Malawi (RBM) Governor has approved Press Corporation Group Pension Fund to provide programmed withdrawal as an option to retirement in line with Section 67 of the Pensions Act.
Press Corporation Group Pension Fund’s Principal Officer, Bidronce Chiphaso, in an interview on Friday said the development means PCL Group Pension Fund is currently the only licensed self-administered pension fund duly approved to provide the programmed withdrawal service.
He said that their programmed withdrawal option is a method by which retiring employees shall, in line with approved decumulation models, collect their retirement benefits in periodic sums spread throughout the length of their estimated life span.
“Time has come for willing retiring members to take control of their retirement funds and participate in decision making and management of their retirement funds; eligible retiring employees will have the freedom of choosing between either annuities or our programmed withdrawal option as their preferred de-cumulation option on retirement.”
“Annuities are common on the market but there was a scarcity of approved providers for programmed withdrawal. This development will provide an alternative decumulation option for retiring members who do not prefer an annuity on retirement,” explained Chiphaso.
Chiphaso hopes that other licensed pension administrators would consider administration of programmed withdrawal and offer options to retiring members as is the spirit of section 67 (1)(a) of the Pension Act, 2010.
Reserve Bank of Malawi (RBM) pension and insurance regulation principal examiner Pachalo Luhanga said the country’s pension sector continues to face considerable compliance issues especially on non-placement of employees on pension and non-remittance of pension contributions.
RBM Governor is the registrar of financial institutions in the country.
Under the National Pension Scheme (NPS), an employee contributes a minimum of 5% of the pensionable emoluments while the employer contributes at least 10% of the employee’s pensionable emoluments.
Contributions by the employer are tax deductible up to a maximum of 15% of the employee’s pensionable emoluments while those made by the employee are not.
Upon withdrawal, through retirement, all the benefits are exempt from income tax. This is applicable whether they are received as a lump sum or as an annuity
In 2011, the legislature in Malawi passed the Pension Act 6 of 2011 and the Employment Amendment Act 27 of 2010 concurrently to specifically resolve two important application problems.
The first problem was the double burden on employers, who operated running voluntary pension schemes for their workers and were required to pay severance allowance as well as pension benefits upon the termination of employment.
The second problem was the widespread income insecurity on retirement for the majority of Malawians. The two Acts clearly separate the circumstances under which pension or severance is applicable.
In brief, pension entitlement is now governed by the Pension Act, whereas severance entitlement is governed by the Employment Amendment Act.
Under these reforms, severance allowance is no longer payable on retirement or death of the employee or incapacitation as was the case previously.
Instead, benefit entitlement arising from retirement, death or incapacitation are now governed by the Pension Act.
However, severance allowance is now only payable on termination of employment due to economic or operational restructuring and unfair dismissal in terms of the Employment Act as amended.
QUICK FACT FILE
What is a Pension?
A pension is an arrangement In which people or employees with an income are provided with an income when they are no longer earning a regular package from employment. The simple explanation is that these are payments a person receives upon retirement.
Types of Pension
There are several types of pension but in Malawi the most common is the employment based pension, which is also known as the retirement plan.
Who is involved in the retirement plan?
The retirement plan requires an employer and their employee to contribute money to a fund during their employment in order to receive defined benefits upon retirement. It is a tax-deferred savings vehicle that allows for the tax-free accumulation of a fund for later use as a retirement income.
Why a mandatory pension scheme?
The mandatory pension in Malawi provides income security for employees who leave employment. Employees can lead a better life using pension funds.
Who is eligible for pension?
You are entitled to join the pension scheme immediately after joining employment. This is according to the new Pension Act. In past years, one could join three months after being employed, with a minimum of 12 month’s employment required for an employee to qualify for a pension scheme.
What is the percentage of pension contribution?
The minimum contribution for employers is 7.5 percent to 10 percent (and 5 percent for employees) of pensionable emoluments.
A two year grace period is given to those who may not afford to contribute 7.5 percent; however, they are allowed to contribute at least 5 percent for the first 24 months, after which they shall be required to contribute a minimum of 7.5 percent.
Employees and employers can opt to contribute more than the minimum. Employers may contribute their portion as well as the employees’ portion (on behalf of the employees) so long as the contribution is not less than the total minimum.
Employers can also exempt their employees from contributing to a pension fund due to low wages. However, where they are contributing everything, 5 percent is deemed to be the employee’s contribution.
Time for making contributions
Contributions are remitted promptly (within 14 days) or else employers face penalties. Contribution arrears for organisations that do not remit contributions to pension funds need to remit within six months.
When do you get the pension money?
Pension contributions are for retirement, hence they cannot be accessed easily.
Employees are entitled to withdrawal benefits on leaving employment – In exceptional circumstances, and after a period of six months of failing to find alternative employment, an employee may be paid his/her own pension contributions plus interest/bonuses – The employer’s contributions cannot be paid as withdrawal benefits until the employee reaches retirement age.
What is the retirement age for accessing pension?
Unless one’s retirement is due to ill health, the retirement age bracket to access accumulated pension funds is between 50 and 70 years. There is no provision for a special age for female employees.
Employees are allowed to commute up to one third (tax free) of their total accumulated credit on retirement. The balance is used to purchase an annuity which will be payable for the rest of their life.
Employees leaving Malawi permanently will be allowed to commute all their pension benefits (both employee’s and employer’s contributions) subject to specified conditions relating to exchange control regulations.
Security
Pension benefits are not used as security against staff or customer borrowing and neither can they be subjected to bankruptcy law.
Death benefits
The minimum death benefits for pensionable employees are equal to 12 x monthly pensionable earnings. Those employees not on pension are entitled to a gratuity or death benefits in line with the second schedule of the Employment Act (5 percent of wages multiplied by each completed month of service).
Transferring pension benefits
Employees are free to transfer their benefits to a fund of their choice, including unrestricted funds. But the employee bears the cost of such transfers.
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