Madison Pension Schemes

MADISON PENSION SCHEMES

Types of Pension Scheme Plans on Offer at MLife, we offer two types of group pension plans namely; Defined Benefits Plan (also known as final salary pension plan) and Defined Contributions Pension plan (also known as money purchase pension plan).


Defined Benefits Plan (Final Salary)

Under this plan, the level of pension benefits is calculated using a predetermined formula which is linked to the member’s final pensionable annual salary, pensionable service and the applicable accrual factor. This type of plan operates as a common pension fund from which benefits such as members, spouse’s or orphan’s pension can be drawn and the benefit structure is the same for all members. A Defined Benefits Plan is subjected to actuarial valuation once every two years to review the financial soundness of the scheme and to determine the level of contributions which are required in future to fund benefits accruing. Should it be found out that there is a deficit on the scheme funds then the employer will be called upon to make good either through raising employer’s contribution rate for some time or inject a lump sum.


Defined Contribution Plan (Money Purchase)

Under this type of plan the level of benefits depend on the growth of the individual pension funds through regular contributions and investment income earned as well as the competitiveness of the annuity rates applicable at retirement. Under the Defined Contribution plan, each member has his own separate pension fund within the scheme. The scheme offers the individual member the right to choose the mix of the desired pension benefits at retirement. In addition, the investment risk is borne by the members, hence the need to have an investment manager who can generate a real rate of return.


Scheme Funding Rates

Group occupation pension schemes are in most cases funded by both the employees and the sponsoring employer.


  1. Member’s Contributions: A funding rate, usually a certain percentage of each employee’s monthly basic salary is provided for each employer. The common contribution rate for members is 5% of a member’s monthly basic salary. In addition, a member can also make additional voluntary contributions to the scheme on which the employer is not required to supplement.
  2. Employer’s Contribution: A funding rate, usually a certain percentage of each employee’s monthly basic salary is provided for each employer. The common contribution rate for employers is 10% of a member’s monthly basic salary. If the scheme is established as a Defined Benefits, there will be need for future regular actuarial valuations at least once every three years to review the continued adequacy of funding the scheme.
  3. The full cost of funding the scheme will be treated as a tax deductible in the hands of the employer, subject to prevailing tax regulation.

Mode of Funding the Scheme

  1. The funding can be made in monthly, quarterly, half yearly or yearly instalments at the preference of the employer.
  2. Past service benefits can be funded in a lump sum or in instalments over a period of time.

PENSION SCHEME ADMINISTRATION AND PENSION FUND MANAGEMENT SERVICES

MLife provides the following pension scheme administration and pension fund management services; Provision of guidance in setting up of pension scheme trusts Distribution of year-end individual members’ pension contribution statement. Distribution of year-end corporate fund statements. Preparation of pension scheme rules and any other pension scheme documentations in consultation with the Trustees. Registration of pension schemes with Pensions and Insurance Authority (PIA) and Zambia Revenue Authority (ZRA).Provision of members’ information booklets and membership certificates Provision of pension fund investment management service level agreement showing investment return benchmarks.


Return on Investment

Pension funds are invested to achieve real rates of return designed to exceed both inflation and commercial bank savings account interest rates over the long term to the time when pension benefits are due for payment. The past analysis of the past investment return achieved by MLife over the period of 10 years is shown below;


Year MLife Average

Investment Return net of Investment expenses Average Annual Inflation Average Commercial Banks Savings Account Interest.


Note: The average MLife Investment Return has been steadily exceeding inflation rates except for the year 2008 because of the effect of the global financial crisis experienced in the year. 7.0 Benefits of Placing a Pension Scheme with MLife There are many benefits that accrue to a pension scheme for selecting MLife as a pension scheme administrator and fund manager such as: Efficient settlement of all pension claims. MLife settles all claims within five working days.


Dedicated Investment Manager

Provision of pension scheme administration service level agreement which specifies time frames in which various pension services will be delivered. Provision of pension fund investment management service level agreement showing investment return benchmarks. Achievement of competitive pension fund investment returns to ensure real growth of pension funds for the members.


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