BRIEF OVERVIEW OF PENSION REGULATION IN MALAWI

The group was tasked to review Pension Regulation in Malawi.

In so doing we shall consider the key features of the Malawian Social Security Scheme, reforms and emerging issues in the sector.

OECD COUNTRY DEMOGRAPHICS & RELEVANT INDICES

GDP per capita (USD) 369
Total Population 13.8 million
Life Expectancy at Birth (years) for Men 48.3
Life Expectancy at Birth (years) for Women 51.4
Percentage 65 or older 0.5
Statutory Pensionable Age - Men 50
Statutory Pensionable Age - Women 50
 Position Before the Introduction of Current Pensions Act

· The current legal regime governing pensions was developed to address two major
problems:
· First problem – double burden on employers, who operated running voluntary pension
schemes for their workers and were required to severance allowance as well as pension
benefits upon the termination of employment.
2nd Problem – Widespread income insecurity on retirement.
· Public Pensions before the new Act was introduced - Public pension scheme:
· The only public pension in Malawi existing prior to the enactment of the Pension Act,
2011 is the Civil Service Pension Scheme (CSPS) operated by the Government of Malawi.
It is a pay as you go defined benefit scheme with automatic membership for civil servants.
· The Civil Service Pension Scheme was exempted for two years from the Act which makes
mandatory the provision of pension benefits to all employees. The two- year exemption
was granted to allow the civil service scheme to complete its overhaul to comply with the
provisions of the new pension law.
Position Before the Introduction of
Current Pensions Act

• Prior to the Pension Act, 2011 pension in Malawi was offered voluntarily through privately
managed occupational schemes. The pension schemes were registered with the
Commissioner of Taxes of the Malawi Revenue Authority. However, no regulatory
framework existed before.
Reforms
Pension Act 6 of 2011 and Employment Amendment Act 27 of 2010

· The two Acts were passed concurrently to resolve the two important application problems
stated.
· The two Acts now clearly separate the circumstances under which pension or severance is
applicable.
· Consequently, severance entitlement is now governed by the Employment Amendment Act
whereas pensions entitlement is now governed by the Pension Act.
· Severance allowance is no longer payable on retirement or death of the employee or
incapacitation as was the case previously (section 35 of Employment Act 6 of 2000)
· 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
Pensions Act 6 of 2011

· Objectives of the Act contained in section 4 are as follows:

· ensure that every employer to which this Act applies provides pension for every person
employed by that employer;
· ensure that every employee in Malawi receives retirement and supplementary benefits as
and when due;
· promote the safety, soundness and prudent management of pension funds that provide
retirement and death benefits to members and beneficiaries; and
· foster agglomeration of national savings in support of economic growth and development
WHAT’S NEW AND UNIQUE?

· It makes it mandatory for every employer and employee to contribute towards pension
fund.
· Further, it compels every employer to maintain a life insurance policy on behalf of every
employee.
A FEW INTERESTING FEATURES OF THE PENSIONS ACT TO BE CONSIDERED IN
THIS PRESENTATION

· Provisions in the Pension Act, which make it mandatory for every employer and employee
to contribute towards a pension fund.
· The Pension (Salary Threshold and Exemptions) Order 2011 which provides for the
exemptions of certain employees from the Pension Act.
· Section 15 of the Pension Act which compels every employer to maintain a life
insurance.
· The Pension Act promotes defined contribution funds as opposed to defined benefit funds
· Future projections
MANDATORY CONTRIBUTORY SCHEME

· An employer is mandated to ensure that his employee becomes a member of either the
national pension fund which covers all civil servants or any other pension fund (Section
6).
· Once an employee becomes a member of the national pension scheme, the Pensions Act
defines the minimum contributions that he and his employer must pay into the fund.
· Section 12(1) states the employer is to contribute 10% and the employee is to contribute
5% of salary towards the pension fund.
PENSION ORDER

• Minister for Finance in consultation with Registrar for Financial Institutions given
discretion to prescribe by Order in the government gazette, a salary threshold by which
an employee may be exempted from complying
THE PENSION ACT PROMOTES DEFINED CONTRIBUTION FUNDS AS OPPOSED TO
DEFINED BENEFIT FUNDS

• 4 reasons for the above proposition

· Prescription of minimum contributions to be paid into the fund;
· Ease of portability of benefits;
· Legislative establishment of individual accounts; and
· Provision of tax incentives to employees.
Should the DC be welcomed? Yes because

· Before the enactment of the Pension Act the regulation of pension funds in Malawi was
left mostly to employers and pension administrators with the government’s involvement
effectively limited to tax considerations.
· Professor Pratt has correctly argued that defined contribution funds cannot be
underfunded or overfunded because the total value of all members’ accounts is equal to
the total value of the fund assets. Therefore, the promotion of defined contribution funds
could address the funding failures of pension funds in Malawi as these funds are always
fully funded and do not require pension insurance for funding protection.
CONCLUSION

• Pros of new pensions regime - it will promote social and economic development by
addressing the problems of income insecurity during retirement and social protection.
This will be achieved by among other things providing for mandatory pension and life
insurance. These features in the Pension Act are beneficial to employees and cost-effective
to employers.
BOTSWANA
• COUNTRY DEMOGRAPHICS

• GDP Per Capita $ 6700

• Population 2.41 million.

• Life expectancy at birth 69.59 years. 2019

• Retirement Age is 60 years

• Early Retirement is 45 years.

The development of retirement funds in Botswana by the government was necessitated by a need
to provide solutions to the challenges faced by the aged

• The Botswana Public Officers Pension Fund (BPOPF) is the biggest pension fund in Botswana. It was
registered in 2001, as a result of governments decision to change the Public Officer’s Pension Scheme from a
Defined Benefit System to Defined Contribution Pension Scheme.
It was eligible to those employed in April, 2001 and beyond as permanent and Pensionable.
Employer Contributes 15% and Employee Contributes 5%.

At Pensions the employee/member gets one third of his /her benefits which is
tax free and the other two-thirds is used to purchased annuity from an
approved insurance of his/her choice.
There are other funds like the fisherman pension fund, examination council
pension fund, agriculture pension fund etc.
 SOUTH AFRICA PENSION
SYSTEM
• DEMOGRAPHICS

• South Africa Population 60 million

• GDP per capita $7080

• Life expectancy at birth 64.13

• Retirement age is 60 years for both men and women.

• Early retirement is 55 years.

South Africa’s Pension System
• The Pension System in SA is composed of a non-contributory, means -tested public benefit pension and provident
fund arrangements.
• An old-age grant is provided by the government under pillar 1 is the main source of income for 75% of the elderly
population
• South Africa has a high rate of unemployment and a substantial part of the working age is informally employed. In
order to address income poverty amongst the elderly
• The government proposed a Social Security and retirement reform. Its objective is to set up an appropriate Social
Security Concept that prioritizes the needs of people without income, or with insufficient income who are engaged
in informal activities. South Africa runs a Public Occupational Pension
• Contribution Balance is 27.5% of taxable income

• They have (3) three types of Pension Fund. Have different contribution caps and deduction bases.

• In March 2016 two-thirds of their fund benefit will be used to purchase an annuity at retirement. Only savings
exceeding R247,500 could do so.
SA New Pension Reforms
 New Reforms
• The National Treasury will introduce new pension fund regulations for
South Africa before the end of February, 2022 says deputy finance minister
David Masondo.
• The proposed review of Regulation 28 is informed by calls for increased
investment in infrastructure given the current low economic growth
climate.
Aims of Reform

1. ‘Unlocking’ new investment in infrastructure by the private

sector and

2. Amend Regulation 28 of the Pensions Fund Act to enable retirement

funds to invest in infrastructure

Therefore, in effect, the reforms introduce more effective maximum

limits for the trustees of retirement funds to invest for the long
term, in various forms of infrastructure projects.
45% Limit in Infrastructure
Domestically&10% in Africa
• The amendments proposed that the overall investment in
infrastructure across all asset categories may not exceed 45%
regarding domestic exposure and an additional limit of 10% in
respect of the rest of Africa.
Definition of “Infrastructure” revised
• Treasury has also expanded its definition of ‘infrastructure’, which was
previously limited only to part of the national infrastructure plan, which
excludes private sector infrastructure and infrastructure in the rest of Africa or
abroad.

• The revised definition is that infrastructure is ‘any asset class that entails
physical assets constructed for the provision of social and economic utilities
or benefit for the public’.

• “This definition takes better account of the United Nations’ Principles for
Responsible Investment (UNPRI) and the input from Association for Savings
and Investment South Africa (ASISA),
Restriction on Investment in Crypto Currency
• The second draft also introduces a new restriction in Regulation 28 on
retirement funds’ investment in crypto assets as these assets are seen to
be very high risk.
• This restriction is in line with the Intergovernmental Fintech Working Group
policy proposal that collective investment schemes and pension funds not
be allowed to have exposure to crypto assets until further notice.
• “crypto asset” is defined under the regulation to mean “a digital
representation of value that is not issued by a central bank but is capable
of being traded, transferred or stored electronically by natural and legal
persons for the purpose of payment, investment and other forms of utility;
applies cryptographic techniques and uses distributed ledger technology”.