What is Pension?
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.
Pension benefits are not used as security against staff or customer borrowing and neither can they be subjected to bankruptcy law.
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. In other words if an employee believes for instance KPMG Pension Fund is not providing enough benefits, he or she can instruct the trustee to transfer the accumulated benefits to a fund of his/her choice. But the employee bears the cost of such transfers.
If you are involved in an accident in the workplace, you can be compensated, but only if you follow the correct procedure.
Malawi Government Workers’ Compensation Act says that an employee has the right to compensation when he or she is involved in an accident whilst on duty.
The Act says there are proceedings for the recovery of compensation for an injury and that notice has to be given once the incident happens.
The Act further says that an application for compensation has to be made with respect to such injury within twelve months from the date it was incurred or in the case of death, within twelve months from the time of death (compensation in this case is paid to the family and/or spouse).
A worker shall be compensated if the following occurs:
"Every injury arising out of and in the course of employment which results in the death of a worker or which may result in death to a worker or is likely to result in some degree of permanent incapacity to a worker or incapacitating a worker from following his normal employment for more than fourteen days."
The process of compensation also demands that if a worker has given notice of an injury, he shall go for a medical examination to be carried out free of charge by a medical practitioner named by the employer.
The Act says where the worker fails to submit himself for such examination; his or her right to compensation shall be suspended until such examination has taken place.
Any employer who fails to compensate an employer after a report has been made or fails to comply with the requirements of the Act, shall be guilty of an offence and liable to a fine of 20,000 Malawi Kwacha ($143).
Here are some of the schedules of percentages of incapacities:
Loss of two limbs, loss of both hands or of all fingers and thumbs, both feet, loss of sight, total paralysis, injuries resulting in being permanently bedridden and any other injury causing permanent total disablement – the worker must receive 100 percent compensation.