Pension and Work

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.

Security

Pension benefits are not used as security against staff or customer borrowing and neither can they be subjected to bankruptcy law.

Death benefits

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.  But the employee bears the cost of such transfers.

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