THE PENSION ACT 2011:
AN OVERVIEW
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PRESENTED AT PENSION ACT
2011 AWARENESS WORKSHOPS
November 2011
OUTLINE
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1. Status of the Act
2. Objective
3. Application & Scope
4. Key Issues
Status
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The Pension Act 2011 was:
 Enacted by Parliament on 1st March 2011.
 Assented to by the President of the Republic
of Malawi on 1st April 2011.
 Gazetted on 8th April 2011.
 Came into force on 1st June 2011 except for
Section 13 of the Act .
OBJECTIVES
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The objectives of the Act are to:
(a) Ensure that every employer to which the Act applies
provides pension for every person employed by that
employer;
(b) Ensure that every employee in Malawi receives retirement
and supplementary benefits as and when due;
(c) Promote the safety, soundness and prudent management of
pension funds that provide retirement and death benefits to
members and beneficiaries; and
(d) Foster agglomeration of national savings in support of
economic growth and development of the country
APPLICATION
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Applies to all employers and
employees in Malawi unless
expressly exempted under
Section 2(1) by the Minister
with approval from Cabinet.
COVERAGE: EXEMPTIONS
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a. Section 10(1) of the Act:
Threshold prescribed by the Minister (Upper limit)
Section 10 (2) of the Act subject to S.10 (2)(b):
 monthly salary of K 10, 000 & below and less
than five employees ; or
c. Section 10 (3) of the Act: Seasonal workers,
tenants, domestic workers, expatriates on valid
TEP, MPs in their capacity as such; or
d. Section 86 (3) of the Act for those already on
pension: three or less than three years to
retirement date.
b.
Employment Act
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 Kindly note S. 10 (4) of the Act that all
employees and employers exempted
under Section 10 (2) and (3) are
governed under the provisions of the
Employment Act.
 In a nutshell, on termination of
employment the employee must be
given gratuity .
Key Issues
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Creates a mandatory pension scheme.
Obliges an employer to provide a life insurance cover
of one times the annual pensionable emoluments of
the employee.
3. Establishes a National Pension Scheme comprising
of a National Pension Fund and other pension funds
licensed under the Act.
4. Prescribes minimum contribution rates:
• 10% for the employer.
the employer at liberty to put at 7.5% from the date
of commencement until 31 December 2012.
• 5% for the employee;
1.
2.
Key Issues cont..
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• Employer and employee can agree to adjust the
contributions upwards;
• Allows for voluntary contribution in addition to the
total contribution provided its within the threshold
in S. 10(1).
• No
downward adjustment for employers
contributing at higher rates than the min
contribution rates under the Act before 1st June
2011. (S. 86 (1))
• Again no downward adjustments for insurance
cover if it was higher than the minimums in the
Act . (S. 86 (1))
Key Issues cont..
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4. Allows for transferability of pension benefits. S.14
• At least once in every two years;
• No need to give reasons;
• Costs of transfer to be on the employee
• Employer to only bear costs for administration
as the employer would have paid in the
employer ‘s arrangement.
5. Provides for portability of pension benefits. S. 44:
 Where an employee switches employment
Key Issues cont..
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6. Requires registration of all pension schemes by the
Registrar. (S. 16 (1)
a) The Registrar will register a restricted fund if :
 the fund rules provide that the fund exists solely to
provide for pensions or annuities;
 The fund rules provide for specific rates and times at
which contributions must be made;
 The trustee of the fund is licensed and fund rules
guarantee that trustee’s powers will not be subjected
to direction by any person. S. 43
Key Issues cont..
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 The fund rules provide that a trustee will not be paid any
fee out of the fund assets for acting as trustee. However an
independent trustee may be paid out of the scheme assets
provided the Registrar determines that the fee is
reasonable.
b) For unrestricted funds the conditions for registration are
stipulated in S. 18. generally the same save for payment
of trustees.
c) S. 19 stipulates conditions for registration of an umbrella
fund.
d) Upon registration, the trustee or operator of the pension
fund or umbrella fund must notify the Commissioner of
Taxes. S. 20
Key Issues cont..
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 The fund assets are held by a custodian
7. Provides for the equal representation rule in case of
restricted funds trustees. (S. 26 (1)
 This includes employers save for circumstances
prescribed by the Registrar. S. 43 (2) (d)
 Fund rules must not subject a decision of the trustee
to approval or consent from the employer unless the
decision touches on increasing benefits or rates of
benefits or costs to the employer or costs of
administration of the fund
Key Issues cont..
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8.
Creates rights for members and a member has a
right to:
a. Fund information which is defined to include:
• Fund investment strategy
• Investment performance and financial
position
• Fees and charges payable by fund members
• Rights and entitlements of members or
beneficiaries under fund rules
• Obligations of member to pay contributions
• Obligations of employer to pay contributions
Key Issues cont..
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b. request information about the fund or his entitlements
in the fund. S. 60;
c. Meaningful and accurate information;
d. Nominate beneficiaries for his death benefits:
 Amount or proportion for each beneficiary to be
specified;
 Nomination may be amended in line with fund rules;
 Nomination is automatically revoked on the divorce
or later marriage of the member;
 Nomination or revocation of a nomination must be
signed by the member either by signing his name or
affixing a thumb impression.
Key Issues cont..
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Obliges employers to promptly remit
contributions. S. 61 (1)
• No later than 14 days after the end of the
month in which the liability to make the
contributions arose.
10. Provides for the immediate vesting of
contributions for pension funds. S. 66
9.
Key Issues cont..
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10. Defines circumstances under which benefits are
payable:
a. When a member reaches retirement age;
b. When a member retires on the basis of years of
service or other conditions under the fund rules
as approved by the Registrar;
c. The member is incapacitated as certified by a
medical practitioner registered with the Medical
Council of Malawi;
Key Issues cont..
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d. The member is about to leave or has left Malawi
permanently (S. 69):
•
40% of the amount payable on the grant if the
application
•
The balance after twelve months from the date of the
first payment only if the trustee if satisfied that the
member has left Malawi permanently
e. The member has died:
•
Death benefits payable as directed in the nomination;
•
Where there is no current nomination or the
nomination is invalid or made under duress the death
benefits shall be paid in such proportions as
determined by the Trustee to persons determined by
the trustee to be persons who were financially
dependent on the member at the time of the
member’s death.
Key Issues cont..
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• If a beneficiary is under the age of 18 years, the
amount to be paid in a separate trust for the
beneficiary until he attains the age of 18. Trustee
allowed to pay parent/guardian of such a beneficiary
any amount from the capital or income of the trust for
the maintenance, education or welfare of the person.
f. The member has permanently left the service of the
employer.
•The benefits may only be paid out for transfer to
another pension fund.
Key Issues cont..
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g. The Registrar has given permission under section
65:
• Where the member has permanently left the service
of the employer for whatever reason and the
member has not secured another employment for a
period of more than six months.
• In this case the benefits paid to the member are
limited to that part of the member’s contributions and
not of the employer and any income on the
contributions.
Key Issues cont..
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11. Sets a limit for commutation of benefits (40 %). S. 68
12. Protects benefits:
• Amounts paid as contributions to a pension fund, a
member’s entitlement to benefits in a pension fund and
amounts paid out of a pension fund by way of benefits in
respect of a member shall not be attached, sequestrated or
levied upon for or in respect of any debt or claim. S 73;
• A member’s entitlements to benefits in a pension fund shall
not be assigned or transferred or pledged or charged or
otherwise be subject to other security interest. S. 75
Key Issues cont..
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 Estate Duty Act and any other
inheritance law is not applicable to
pension benefits.
13. Retirement age bracket: 50-70
and pension fund rules to
determine the retirement age.
Key Issues
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15. Ensures fairness. S .91:
a.



Employers with existing pension schemes or gratuity
arrangements:
Calculate severance liability as per Employment Act from
employment date to date of Pension Act;
If severance liability is greater than employer pension
contribution or gratuity plus growth, the employer to
transfer the difference into a pension fund of the
employees choice within eight years;
If severance liability is lower, such to be recognised as
severance entitlement and not pension within the
pension fund;
Key Issues cont..
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 Where an employee leaves the company, that
liability is immediately payable to any pension fund
of the employees choice;
 Any severance liability not transferred into a
pension fund will accrue interest at the rate of
average annual Consumer Price Index as
published by NSO;
 Employers may be required to provide a schedule
of payment outlining plan to fund severance
liability.
Key issues cont..
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b.





Employers without existing pension or gratuity schemes:
Calculate severance liability as per Employment Act from
employment date to date of Pension Act;
Arrange to transfer this liability into a pension fund of the
employees choice within eight years from date of the Act.
Where an employee leaves the company, that liability is
immediately payable to any pension fund of the employees
choice;
Any severance liability not transferred into a pension fund
will accrue interest at the rate of average annual Consumer
Price Index as published by NSO;
Employers may be required to provide a schedule of
payment outlining plan to fund severance liability.