Since the enactment of the mandatory
Pensions Act of 2011, Malawi has made positive strides in ensuring that all
working human resources in private and public sectors are put on pension and
have a fallback upon retirement. This has seen pension reserves hitting over
two billion in just under three years from the private sector alone as
government is yet to fully commit to bankroll all of its workers on pension. Due to the smooth running of the pension this far coupled
with good management of the funds by pension fund managers such as NICO, Old
Mutual etc., there is public confidence in the mandatory pension scheme despite
other challenges and setbacks such us non remittance by other employers.
The mandatory
pension scheme indeed has provided social and financial security in retirement.
Pension funds provide financial security and
stability during old age when people do not have a regular source of income.
Pension funds also ensures that people live with pride and without compromising
on their standard of living during senior years. The resources from pension gives
an opportunity for investment. Employees are thus able to accumulate savings
and get lump sum amount as regular income through annuity plan on retirement. Accumulated savings through pension funds, contributes
significantly towards wealth formation which is vital to creation of
investments. If properly channeled, the investments from pension funds may
positively contribute to economic growth through infrastructure development etc.
However, the
current Pensions Act is only restricted to those in formal and organized employment
leaving out the informal and an unorganized sector. These include vendors,
mechanics, fish mongers, Malawians leaving abroad etc. who are actually in large
numbers than the ones currently covered by the Pensions Act. This means that a
large proportion of the Malawi population is not covered and likely to face
challenges in old age as they do not have savings in form of pension. The country
also loses out as investible funds that could be generated from this group of
people is not collected.
This therefore
brings the concept of Voluntary Pension Scheme. This is where those in the
informal sector are encouraged to join voluntary pension schemes and voluntarily
make contributions to the scheme at a set minimum figure. Typically, this should arguably be the cheapest pension
plan as the amount contributed is generally small supported by government
framework and policy. It should be set up to be a non-withdrawable account meant for
savings for retirement and the emphasis being on the fact that it is purely on voluntary
contribution basis. The advantage of this pension scheme is that it is
regulated by government and as such not prone to abuse by fund administrators
as it monitored by the central bank. Courtiers such as Nigeria, India, Ireland and
many others have introduced voluntary pension system and the benefits can be
observed.
Is voluntary pension system the missing block in Malawi? Would introduction
of this system help in reducing suffering of the unorganized social workers in
old age in the country? It is my considered view that voluntary pension system would
indeed help a large pool of the undocumented workforce currently left out by
the law to be cushioned from lack of savings at retirement. It also entails further
creation of jobs in pension fund houses and agents. It is therefore my hope that policy makers and
partners such as Ministry of Finance, the Reserve Bank of Malawi etc., would explore
this area for its feasibility and practicality.
