Malawi: National Bank of Malawi Transfers Pensioners' Benefits to Nico Life

26 January 2021

The Trustees of National Bank of Malawi (NBM) Pension Fund have migrated NBM plc ex-employees' benefits from the Fund to Nico Life Assurance Company effective 1st January 2021.

Announcing the change in Blantyre, NBM Pension Administration Limited Chief Executive Officer William Mabulekesi said the move has been necessitated because of the differences in risk profiles for active employees and pensioners (retirees).

He said the concerned members are those who retired from NBM plc on or before 31st May 2014.

Mabulekesi explained that when the Pension Act became effective on 1st June 2011 there was a provision of a three year transitional period which expired on 31st May 2014 where employees retired in this period had 40% of part of the total accumulated pension benefit was accounted as cash lump sum while 60% the residual balance remained in NBM Pension Fund to cover for their monthly pension receipts for life.

"This means that the underlying assets relating to residual balance for the ex-employees remained in the Fund and invested together with the portfolio for active employees. It must be borne in mind that membership of a particular pension fund is employment based. So if a member retires from service automatically he exits the Fund."

"But Pensioners and active members have different risk profiles. For example a pensioner is guaranteed to receive monthly income for life after commuting part of their benefits depending on the rules of the Fund applicable then. While active employees on the other hand are contributing to the Fund every month with a view to maximize return till retirement age or a certain condition is fulfilled and get part thereof as cash lump sum on retirement at a certain date in future."

"Therefore the investment strategy of the assets of these two groups of members cannot be the same because they are pursuing a different objectives in as far as Pension Fund is concerned. This paradox therefore created a challenge when it comes to distribution of bonuses at the end of the year because each segment of membership is pursuing a different agenda," explained Mabulekesi.

He said pensioners and active members have different bonus declaration policies yet the assets were invested together.

"This also created an element of subsidy from active employees to pensioners and brought inequality in as far as bonus distribution in the Fund was concerned. The Trustees consulted all key stakeholders including actuaries of the Fund who gave guidance to take this course of action," said Mabulekesi.

He said Nico Life emerged as a successful bidder from licensed Annuity service providers in the market after an expression of interest was floated. NICO met all the terms of reference including affordability of the Fund to pay the liabilities.

Mabulekesi assured the members to feel at home at Nico Life since they are to join a bigger pool of about 2,000 pensioners thereby leveraging from Law of Large numbers.

"In addition, they are joining an annuity portfolio which ably suits their objective of guaranteed monthly pension receipts for life. In the Annuity Fund this agenda is well defined in contrast to be in a pool combined with active employees of NBM plc who are aspiring a different ambition altogether," said Mabulekesi.

Mabulekesi also said all pensioners who currently receive their monthly pension pay-outs through NBM Pensions Administration Limited, will now be receiving the same from Nico Life.

"In light of this development, the Board of Trustees is calling all the concerned pensioners to avail themselves at NBM Pensions Administration Limited Offices in Blantyre or any of their nearest Service Centre of National Bank of Malawi plc, where they will be requested to sign a Consent Form as proof that they are in agreement to the migration of their residual pension benefits to NICO Life Assurance Company," said Mabulekesi.

He said if the concerned NBM plc pensioners do not contact them to sign the Consent Form within 30 days, it will be assumed they are agreeable to this arrangement and the Trustees will proceed transferring the residual balance to NICO Life Assurance Company from where they will be receiving their monthly pension payments for life.

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