Pension Act, 2011 -Practical Issues

1. Pension Act, 2011 -Practical Issues RESERVE BANK OF MALAWI

2. National Pension Scheme • Comprises • National pension fund • Any other pension fund licensed • Administration • National Pension Administrator • Any other licensed pension fund administrator • Investment Management • Licensed • Portfolio managers

3. Registration of Pension Funds • Previous practice • Types of pension funds envisaged under the Act – difference with provident fund • How will registration be done • Restricted pension schemes, Unrestricted pension schemes, Umbrella funds • Defined benefit schemes, Defined contribution schemes, Hybrid Schemes

4. Pensionable emoluments • Act, defines pensionable emoluments as guaranteed wages and other earnings, but not including personal investment income, capital gains, or provision from employers in the form of houses or motor vehicles • Two elements to consider • Emoluments have to be guaranteed to be paid without any pre-conditions attached • Entitlements to a particular position as a privilege of holding that position

5. Exemptions • Criteria laid out in the Pension Act, section 10 • Expressly exempted by the Minister - Government Notice No. 32 lists the following as exempted; • Seasonal employees • Tenants • Expatriate employees with a valid Temporary Employment Permit • Members of Parliament in their capacity as such • Domestic workers • Section 86(3) – employees with three years to retirement, does not apply to everyone

6. Exemptions • Application of Employment Act • Grace period • International companies with global policies (pension and insurance)

7. Contract Employment • Not exempted • Act does not prohibit employment of staff on contract employment • Those with running contracts as at 1st June, 2011 encouraged to negotiate • Gratuity may still be paid at the wish of the employer contributing to both pension and gratuity, or alternatively reduce gratuity by pension contribution

8. Minimum Contribution Rates • From 1st June 2011 to 31st December, 2012 • Employer 7.5 percent • Employee 5.0 percent • From 1st January 2013 • Employer 10.0 percent • Employee 5.0 percent • In both scenarios, employer may elect to contribute more than minimum prescribed rate or all contributions

9. s91 – Pension & Severance • Why have section 91? • Immediately to be done – calculations in section 91 • Whose account is severance entitlement payable? • Severance entitlement in Pension Act vs severance allowance in Employment Act, why have both? • Which schedule to use when calculating severance entitlement/allowance • NGOs

10. Taxation • Implementation of section 13 deferred • Offers maximum possible benefit • Current model considered too excessive to encourage savings • EET Model preferred • Currently engaged government

11. Principles of Preservation and Portability • Preservation • Restricting access to given conditions • Closely connected to income replacement ratio • Portability • Transferability of pension funds • Flexibility of pension system • Enhance performance – need to control risk taking to avoid potential losses to members • Investment limits • Legal liability for losses

12. Other issues • Group life insurance • Who should take it between employer and pension fund? • Should it always be with an insurance company • Nomination of beneficiaries • Principal Officer – answerable to the trustees • Pension not to be pledged as collateral – how to deal with previously pledged pension • Setting retirement age – building in incentives

13. QUESTIONS

14. CONTACT DETAILS The Director Pension and Insurance Supervision Department Reserve Bank of Malawi 10 Hannover Avenue PO Box 565 Blantyre Tel : 01 820 444 or 01 820 299 Fax: 01 832 222 Email: pisu@rbm.mw Web: www.rbm.mw