Employer Action Code: Act

A new mandatory national pension system (NPS) was established in 2011 that requires both employee and employer contributions. The legislative framework is still being developed, and parliamentary action is still being announced. The Malawi pension legislation is amalgamated from different jurisdictions and is now under review to ensure that it is locally sustainable. Even so, the government regulator has made it clear that employers have been responsible for compliance since the June 2011 effective date for the core legislation.

The objective of the mandatory NPS, created under the Pensions Act of 2011, is for all employers to provide retirement and life insurance benefits for their employees. Previously, there was no public pension system. The government’s favorable tax policies encouraged employers to provide private pension plans on a voluntary basis. Currently, there are approximately 400 private plans.

Key Details

Under the new system:

  • Employers are required to enroll employees earning more than MWK10,000 (US$31) per month in the system within 12 months of employment.
  • Employers must contribute 10% of salary (or 7.5% of salary until the end of 2012), and employees must contribute 5% of salary. Employees and employers can choose to contribute higher amounts.
  • A life insurance benefit equal to the employee’s yearly salary must be provided.
  • Employees qualify for retirement benefits at age 50 or after 20 years of contributions, whichever is later.
  • Contributions can currently be made to one of three types of privately managed funds:
    • Restricted funds: Company-sponsored pension funds restricted to a single employer or group of related employers
    • Unrestricted funds: Open to any member of the public
    • Umbrella funds: Restricted to trustees of particular funds and used mainly for the purpose of pooling investments

    These must be registered and licensed by the Registrar of Financial Institutions. Employers’ existing pension plans are deemed to be licensed under the new act.

  • In addition, a portion of the NPS must be invested in the National Pension Fund Administrator (NPFA). As an institution, the NPFA has not yet been established in Malawi, so this provision is yet to be implemented.
  • The new system replaces the old system of termination indemnities required under the Employment Act of 2000, except for workers not covered under the new system. The value of the termination indemnity must be transferred into a pension fund within the next eight years, or earlier if an employee leaves a position. This effectively requires that a previously unfunded liability be fully funded.

Implications for Employers

Although the infrastructure to administer the act is not fully functional, the Registrar maintains that the act in its current form is active and enforceable. The Regulator has also begun the process of developing self-monitoring mechanisms to ensure compliance with the legislative requirements.

Employers should review their benefit arrangements to ensure compliance with the new system as follows:

  • For employers that already have a pension plan, ensure the mandatory contribution requirements are met.
  • For employers without a plan, choose a vehicle for the required contributions.
  • If necessary, make retroactive contributions, including interest for late payments.
  • Ensure employees are covered for the minimum life insurance benefits.
  • Determine a schedule of payments to fund the accrued termination indemnities.