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| Voluntary Pension System Brief background |
All individuals, whether engaged in the formal employment or self employed earn up to a certain physiological age, which is generally referred to as their retirement age. After the retirement age, their natural capacities to work and earn deplete to an extent that they are unable to generate enough resources to support their living style and other needs of old-age. This is the stage in individual’s life cycle where the need is eagerly felt for voluntary or occupational pensions and savings schemes in which individual could have saved enough to provide earnings today which could conveniently replace the pre-retirement cash flows.
In nature, for private sector, these pension and savings schemes could be either employer sponsored or self sponsored. The Voluntary Pension System as discussed later ahead, can be used both as an employer sponsored as well as a self sponsored savings vehicle. Other examples of retirement benefit arrangements are gratuity, provident fund and superannuation schemes – these schemes, due to insufficient legal mandates; and today’s high employee turnover, are left with limited utility as retirement benefit arrangements. This whole portrait led the regulator to take the initiative and launch a pension system which could cater to the pension needs of both, the employed and the self-employed individuals.
The SECP takes the first step in the new direction – ‘Voluntary Pension System’:
Back in year 2003, the mandate to promote and regulate private pension schemes and funds, was conferred upon in SECP vide an amendment in the SECP Act, 1997 through Finance Act, 2003. In Pursuance of its mandate, the SECP, after screening the applicants on rigorous criteria, has licensed four asset management companies to act as Pension Fund Manager under the Voluntary Pension System Rules, 2005 – the rules notified in year 2005, to give effect to the SECP’s pension mandate. Seven Pension Funds, of which four are Islamic and three are conventional, have been launched by the Pension Fund Managers.
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| Voluntary Pension System – a Quick look |
| The Voluntary Pension System provides a comprehensive framework for the employed and self-employed individuals to contribute into the Pension Funds launched under this system, during their working life to provide regular income after retirement. This way, an effort is made to enable the participants maintain a reasonable standard of living at retirement. This, therefore, inevitably makes the Pension Funds a savings-cum-investment Vehicle. Pakistani nationals holding National Tax Number or a Computerized National Identity Card can avail tax credit by investing a part of their salary or income from business as specified in the tax laws. Individuals contributing to the Pension Fund have the flexibility to choose between various investment options as well as between various fund managers. The Pensions Wing of the Specialized Companies Division of SECP regulates and monitors the Pension Funds.
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| Registration under Voluntary Pension System Rules |
Four entities have been registered under VPS and seven Pension Funds have been authorized by the Commission as per the following details:-
Name of entity |
NBFC or Life Insurance Company |
Pension Funds authorized |
Conventional Pension Funds |
Islamic Pension Funds |
JS Investments Limited |
NBFC |
1 |
1 |
Arif Habib Investment Management Limited |
NBFC |
1 |
1 |
Atlas Asset Management Limitd |
NBFC |
1 |
1 |
Al-Meezan Investment Management Limited |
NBFC |
- |
1 |
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| Survey of Occupational Savings Schemes 2007/ 2008 |
A Survey of Occupational Savings Schemes was carried out during 2007/08 to gather preliminary statistics regarding the Occupational Savings Schemes in vogue with the listed companies. The objectives included, to understand structure of the existing OSS; to know if the present regulatory framework provides an encouraging or discouraging environment; to assess the asset mix and their penetration into the savings markets etc.
 Download Survey Document
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Recent Developments |
It is important to mention that very recently a further amendment has been made in the SECP’s pension mandate to include promoting and regulating the occupational savings schemes established by the Companies or State Owned Corporations. The events which preceded this amendment included the a workshop and a preliminary survey of the Occupational Savings Schemes with the listed companies to collate information as to size and characteristics of such arrangements.
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| Way Forward |
The Commission has conveyed its desire to engage a consultant under ADB sponsored project TA -4956 for developing a comprehensive regulatory framework for occupational pensions and savings schemes. Terms of reference proposed for the consultants are as under:-
- Review of existing laws and mandate of different ministries / organizations governing pensions, superannuation, gratuity and provident fund schemes (collectively referred to as Occupational Saving Schemes).
- Review of existing Tax Laws.
- Propose amendments in the existing laws / tax regime.
- Draft a unified supervisory and regulatory framework in the context of SECP mandate under SECP Act (Section 20 (4) (W) ) encompassing the following:
- Product structure & flow;
- Responsibilities (rights / obligations) of Trustees, employers, employees, participants;
- Responsibilities, duties & powers of regulator;
- Monitoring and enforcement mechanism; and
- Any other aspect necessary to regulate and promote the Occupational Savings and other post employment benefit schemes in the country.
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