Malawi Pension Act explained: What employers and employees must know

Understanding Malawi’s Pension Act is important for both employers and employees. For employees, it helps clarify how much should be contributed towards retirement savings and what benefits they can expect.

For employers and HR professionals, it provides a legal framework for managing pension contributions, meeting statutory obligations and avoiding compliance problems. Yet, pension calculations and requirements can be confusing, particularly when determining which salary components qualify for pension contributions. This guide explains the key provisions of Malawi’s Pension Act, 2023, and what they mean in practice.

What is the Pension Act, 2023 in Malawi?

Malawi’s Pension Act, 2023 (Act No. 6 of 2023) is the law governing the country’s pension system. It establishes the National Pension Scheme, which consists of a mandatory occupational pension scheme and a voluntary pension scheme. It also establishes the National Pension Fund and regulates other registered pension funds.

Under the Act, every employer must make provision for every person in their employment to be a member of a pension fund under the mandatory occupational pension scheme. Employers must also ensure that membership of a pension fund is a condition of employment. The Minister may exempt particular classes or categories of employers or employees by order, so employers should confirm whether any exemption applies to their organization.

Both employers and employees are required to contribute towards retirement savings. The Act also provides for regulatory oversight and enforcement to promote compliance and protect pension scheme members.

What are an employer’s obligations under the Pension Act?

Under Malawi’s Pension Act, 2023, employers covered by the mandatory occupational pension scheme have several responsibilities. These obligations go beyond simply deducting money from employees’ salaries. They include the following:

1. Enrol eligible employees in a pension fund

Employers must ensure that eligible employees are members of a pension fund under the mandatory occupational pension scheme, unless a lawful exemption applies. The Act requires employers to make pension-fund membership a condition of employment.

2. Contribute at least 10% of pensionable emoluments

Employers must contribute a minimum of 10% of each employee’s pensionable emoluments towards their retirement savings. Employees are also required to contribute at least 5%.

These are minimum statutory rates, and an employer and employee may agree to higher contributions. An employer may also pay the employee’s 5% contribution on the employee’s behalf; in that case, the employer’s total minimum contribution is 15%.

3. Deduct and remit employee contributions

Where an employer deducts an employee’s pension contribution from their salary, the employer must ensure that the money reaches the pension fund. Employers must not treat deducted contributions as ordinary business funds or delay forwarding them.

4. Remit contributions within the statutory deadline

Both the employer’s contribution and any employee contribution deducted from salary must be paid to the trustee no later than 14 days after the end of the month in which the contribution liability arises. HR and payroll teams should therefore maintain a reliable monthly contribution and payment schedule.

5. Maintain life insurance cover

Employers must maintain a life insurance policy for each employee covered by the mandatory occupational pension scheme. The minimum cover is equivalent to the employee’s annual pensionable emoluments.

For HR teams, these requirements make accurate employee records, payroll calculations and timely payments essential. A missed deduction, incorrect calculation or delayed remittance can create compliance problems and affect employees’ retirement savings.

How is pension calculated in Malawi?

In Malawi, pension contributions under the mandatory occupational pension scheme are calculated using an employee’s pensionable emoluments, rather than automatically using their entire gross salary. The minimum statutory contribution rates are 10% from the employer and 5% from the employee, giving a combined minimum contribution of 15%.

For example, if an employee earns K500,000 in monthly pensionable emoluments:

• Employer contribution: K500,000 × 10% = K50,000
• Employee contribution: K500,000 × 5% = K25,000
• Total monthly pension contribution: K75,000

In this example, the employer contributes K50,000, while K25,000 is deducted from the employee’s salary. The combined K75,000 is then paid towards the employee’s retirement savings.

It is important to distinguish pension contributions from the eventual retirement benefit. The amount an employee receives at retirement may depend on the contributions accumulated, investment performance, fees and the rules of their pension scheme. Therefore, contributing 15% each month does not guarantee a particular retirement payout.

What counts as pensionable emoluments?

One of the most important aspects of pension calculations in Malawi is understanding what qualifies as pensionable emoluments. This is because pension contributions are not necessarily calculated on an employee’s entire gross salary.

The Pension (Pensionable Emoluments) Directive, 2025 provides guidance on which payments should be included when calculating pension contributions. Under the directive, pensionable emoluments generally include:

• Guaranteed wages: Basic wages, excluding overtime and bonuses.
• Housing or accommodation allowance: This is included only where it is not paid in place of employer-provided accommodation and exceeds 40% of the employee’s guaranteed wages. Only the amount above the 40% threshold is included.
• Regular commissions: Commissions paid regularly, either as the employee’s only form of remuneration or alongside a minimum basic salary.
• Other contractual cash allowances: Allowances paid in cash as part of an employee’s normal duties, as provided for in their employment contract, subject to the directive’s exclusions.

The directive also identifies payments that are generally excluded from pensionable emoluments, unless an employment contract or collective agreement expressly provides otherwise. These include overtime, business travel and subsistence allowances, utilities and education allowances, benefits in kind, discretionary bonuses, acting allowances, leave grants and payments for unused leave.

For example, consider an employee earning K500,000 in guaranteed monthly wages and receiving a housing allowance of K250,000. Forty per cent of the guaranteed wages is K200,000. Since the housing allowance exceeds this threshold by K50,000, only K50,000 is added to pensionable emoluments, assuming the allowance meets the directive’s other conditions.

The employee’s pensionable emoluments would therefore be K550,000, rather than K750,000. This distinction matters because using the wrong salary components can result in incorrect pension deductions and employer contributions.

HR and payroll teams should review employment contracts and payroll classifications carefully to ensure that each payment is treated correctly.

How much pension will you receive at retirement?

The amount an employee receives at retirement depends on the type of pension scheme they belong to, the contributions accumulated over their working life and the performance of the pension fund’s investments.

Under a defined contribution scheme, the retirement benefit is based on the total contributions made by the employer and employee, together with investment returns, less applicable fees and charges. This means that two employees earning similar salaries may receive different retirement benefits depending on their contribution history, investment performance and length of membership.

For example, consider an employee whose monthly pensionable emoluments are K500,000. At the minimum combined contribution rate of 15%, K75,000 is contributed every month. If the employee and employer maintain these contributions for 20 years, the total contributions would amount to K18 million, assuming the salary and contribution rates remain unchanged.

However, K18 million represents contributions only. The final retirement benefit could be higher or lower depending on investment performance, fees and other scheme rules.

Employees should therefore review their pension statements regularly, understand how their scheme calculates benefits and ask their pension administrator for retirement benefit projections. Starting contributions early and maintaining consistent contributions can help build retirement savings over time.

What happens when employers fail to meet pension obligations?

Employers who fail to meet their pension obligations risk regulatory action and financial penalties under Malawi’s Pension Act, 2023. Failure to remit contributions, late payments or non-compliance with pension requirements can affect employees’ retirement savings and expose employers to additional costs.

One particularly serious issue is the failure to forward pension contributions deducted from employees’ salaries. These deductions are intended for employees’ retirement savings and should not be used to meet an organization’s operating expenses.

Non-compliance can also create administrative challenges, damage an organization’s reputation and undermine employee confidence. Employees may find that their pension accounts do not reflect the contributions they expected, making it important to review pension statements and raise discrepancies with their employer or pension administrator.

Employers should therefore maintain accurate payroll records, reconcile pension contributions regularly and ensure payments are made within the statutory deadlines. Addressing discrepancies early can help prevent compliance problems from becoming more serious.

How HR teams can simplify pension calculations with rézoluHR

Managing pension contributions manually can become complicated, particularly for organizations with many employees, different salary structures and multiple allowances. HR and payroll teams must ensure that pensionable emoluments are calculated correctly, statutory contribution rates are applied and deductions are accurately reflected in employee payslips.

This is where HR technology can help. rézoluHR includes a PAYE calculator that can also calculate pension contributions, helping HR professionals determine employer and employee contributions where pensionable emoluments and contribution rates are correctly configured.

By simplifying these calculations, rézoluHR can help reduce administrative work and make routine payroll processes easier to manage. HR teams can spend less time working through individual calculations and more time focusing on employee management and other strategic responsibilities.

However, organizations should still review their payroll configurations and ensure that pensionable emoluments are classified correctly in line with Malawi’s Pension Act, 2023, and the Pension (Pensionable Emoluments) Directive, 2025.

For growing organizations looking to simplify HR and payroll administration, rézoluHR offers a practical way to make routine calculations easier.

Conclusion

Understanding Malawi’s Pension Act, 2023 is essential for both employers and employees. Employees need to know how their pension contributions are calculated and whether their employer is meeting its obligations. Employers, on the other hand, must ensure eligible employees are enrolled, contributions are calculated correctly and payments are remitted within the required deadlines.

Accurate payroll records and a clear understanding of pensionable emoluments can help organisations avoid costly mistakes while protecting employees’ retirement savings.