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Malawi: New Pension Scheme Introduced

(Mar. 9, 2011) On March 1, 2011, the 193-member unicameral Malawi Parliament adopted Pension Bill No. 14 of 2010, which seeks to establish a mandatory pension system. (Dickson Kashoti & Suzgo Khunga, House Passes Pension Bill, BNL TIMES (Mar. 2, 2011).) The bill will now be sent to the President for his assent. (Id.)

The bill establishes a national pension fund to which employers and employees will make periodic, mandatory pension contributions. The bill will require employers to make pension contributions for individuals they have employed for at least 12months. (Pension Bill No. 14 of 2010, § 9, THE MALAWI GAZETTE SUPPLEMENT (June 11, 2010).) The bill will also require employees who qualify to participate under its provisions to make periodic contributions to the pension scheme from their pensionable salaries. (Id. at § 12.) In addition to the minimum of twelve months' employment required for an employee to qualify for a pension scheme, there will be a minimum salary threshold as a requirement for participation; that threshold will be set in the future by regulation. (Id. at § 10.)

In addition to prescribing employer contributions to employees' pension funds, the bill also requires employers to purchase a life insurance policy for every employee. The mandatory life insurance policy will have a payout value equivalent to the employee's annual pensionable income. (Id. at § 15.)

Numerous amendments were made to the bill in the heated debate in Parliament leading up to its adoption. The notable amendments made to the legislation before it was passed include:

· reduction of the minimum retirement age, originally set at 55 years, to 50;

· reduction of the minimum years of service needed to qualify for retirement from 25 years to 20; and

· changing of the minimum mandatory contribution requirements for employers and eligible employees from 7.5% to 5% of the employees' pensionable income.

(Patrick Maulidi, MalawiParliament Rises After a Month, ZODIAK ONLINE (Mar. 3, 2011).)

Unlike the 401K system in the United States, which postpones taxes on contributions and any returns on investment of the contributions, in Malawi all contributions and returns on investment of the contributions are exempt from income tax. (Pension Bill No. 14 of 2010, supra, at § 13.)