LILONGWE-(MaraviPost)-The country’s central bank, Reserve Bank of Malawi (RBM) is considering to liquidating pensionable gratuity scheme as cost cutting measure, it has been learnt.
The move comes amid general public outcry over the scheme shortfalls as retirement packages are currently disadvantaging employees since Pension Act was introduced in 2010.
Consequently, in 2012 RBM introduced the Pensionable Gratuity Scheme as one way of addressing the disparity in benefits for members of staff with different exit modes.
This followed also the amendment to the Employment Act (2000) and the introduction of the Pension Act (2010) where it was noted that members of the staff working all the way to retirement were being disadvantaged as opposed to those dying (died) in service.
The central bank specifically noted at the time that Section 4 (b) of the Pensions Act states that one of the objectives of the Act is to, “Ensure that every employee in Malawi receives retirement and supplementary benefit as when due’.
However, supplementary benefits under the Act are only specified in Section 15 for death benefits as follows;
- An employer shall, in addition to making pension contributions on behalf of its employees, maintain a life insurance policy in favour of each of its employees for a minimum life insurance policy cover of one times the annual pensionable emoluments of the employee
- The benefits of the life insurance policy specified in subsection (1) shall form part of the member’s death benefit and shall be distributed in accordance with section 70.
This means that employees working up to retirement were being disadvantaged as they did not receive the supplement benefit as required by the Act.
RBM Director of Communication & Protocol Mbane Ngwira confirmed the bank’s thinking on the matter to The Maravi Post in an interview saying that failure by the Act (Law) to define the nature of supplementary benefit payable on retirement compelled the central bank to introduce the Pensionable Gratuity Scheme as one way of leveling the playing field.
Ngwira however observed that seven years down the line, the liability of scheme has increased from MK8 billion to MK14 billion and holding all factors constant.
He therefore disclosed that the liability is projected to rise to over MK25 billion by 2024.
“This would be unsustainable and would lead to drain the bank’s financial resources. The only way out is to stop it and liquidate it before it reaches a crisis point at which no remedial measure will be financially attainable.
“The bank is therefore pondering liquidating the scheme in line with existing legislations such as the Pension Act, Employment Act and other laour laws,” confirms Ngwira.