The Malawi Congress of Trade Unions (MCTU) has sent out a warning to all employers who have been hoarding pension funds of their workers that they will be taken to court this year.
The union, an umbrella body of workers in the country, has issued the warning following reports that over K7.4 billion of pension money is still being held by employers.
The Pension Act 2010 mandates that employers should be remitting pension funds to administrators. The Act also makes pension funds remittances mandatory and under it, employers are mandated to enroll their employees on a pension scheme.
Under the law, employees contribute a minimum rate of five percent while employers are mandated to remit 10 percent of the employees’ monthly gross salary which aggregates to 15 percent monthly.
However, according to regulator of pension, the Reserve Bank of Malawi, as of December, 2018 the private sector alone had pension funds non-remittances amounting to K5.7 billion which represents 56 percent of total defaulters dating back to the time the Pensions Act 2010 came into effect.
MCTU president Luther Mambala said in an interview this week, the default rate is worrying to the union and will be forced to act.
“Failure by employers to remit pension funds means that employees will lose out their savings when they retire because pension funds will be minimal or not available,” he said.
As such Mambala warned that MCTU will soon take legal action if RBM—which has been in overdrive this year to enforce the law—fails to get employers to pay up the arrears.
Mambala’s fears are backed by Nico Life Insurance Company Limited, one of the pension fund managers.
Nico Life Insurance chief executive officer Eric Chapola last year said they receive complaints and inquiries on administration of pension funds and some employers are suing companies over pension issues due to non-remittance.
“If these contributions are not with us, the employees that will retire, firstly will get less than they would have received; secondly, they are missing out on investment interest.
“These funds that are with us are invested in various forms so that we maximise on the returns. When people go into retirement, they must at least manage the same lifestyle as when they were working,” he said.
Mambala said employers are committing a criminal offense because they deduct the funds from employees which it is reflected on monthly pay slips but fail to remit the same to pension fund administrators.
He said the central bank has the powers to take to task employers to comply with the Pension Funds Act but expressed concern that it was failing, adding that naming and shaming is meaningless when results are not coming as intended,
“There is need for practical action to compel the non-compliant employers to remit the pension funds as soon as possible,” he said.
Employers Consultative Association of Malawi (Ecam) president George Matipwiri admitted that most employers are struggling to remit pension funds, but despite that they are backing calls by the central bank and other stakeholders that all employers should abide by the law.
RBM spokesperson Mbane Ngwira said the central bank has given employers up June this year to remit the funds including the arrears failure which they will be punished.
“We started negotiations way back and we have given them up to June to clear these arrears. They are giving varied excuses for not remitting the funds but to the larger extent some claim to have not remitted the funds due to harsh economic conditions. However this may not be acceptable since all companies are working under the same conditions and the economy is on a recovery path,” he said.
A move by the central bank to deal with non-compliant private sector institutions comes months after it named and shamed 18 government parastatals that have not been remitting the funds amounting to K5.6 billion for a period of six years.
Major public parastatals the central bank named include Agricultural Development and marketing Corporation (Admarc) K1.3 billion, Lilongwe University of Agriculture and Natural Resources (Luanar) K958.1 million, Malawi Broadcasting Corporation (MBC) K854.5 million and Blantyre Water Board K717.6 million. n