The government has decided to introduce a new system that will help ensure financial security for employees after retirement. As mentioned in recent reports, a voluntary pension scheme is slated to commence on July 1st to meet IMF conditions. This blog post will explore the Voluntary Pension Scheme (VPS) in Pakistan in detail.

Sources within the government revealed that the introduction of the voluntary pension scheme aims to alleviate the burden of huge government pensions and streamline the pension system. Any new human resources will be hired under the voluntary pension scheme, transitioning from the traditional government pension setup.

A comprehensive strategy has been devised for new government recruits by the Securities and Exchange Commission of Pakistan (SECP), according to sources in the Ministry of Finance familiar with the matter. 

“New government employees will get a voluntary pension instead of the government scheme. If the existing employees also agree, they can be transferred to the new scheme,” the sources added. 

The new pension scheme is designed to provide a constant, steady income to government employees upon retirement, unlike the existing Provident Fund or gratuity facilities offered in the private sector. The SECP has proposed the implementation of the pension scheme in both the public and private sectors to ensure financial security for employees during their retirement years.

Sources also disclosed that the voluntary pension scheme will enable employees to maintain their pension benefits even in the event of a job change, ensuring continuous financial support post-retirement. The SECP has suggested the private sector only offer the voluntary pension scheme. 

Currently, 43 pension funds are being set up across the country, with approximately Rs61 billion invested. Sources further said that the Khyber Pakhtunkhwa government took the initiative to invest in the pension funds two years ago, with 21 pension funds catering to its employees.

Following suit, the Punjab government is also poised to initiate a voluntary pension scheme for its employees, signaling a broader adoption of the pension reform initiative across various provincial governments.

The decision to introduce the voluntary pension scheme comes as part of the government’s efforts to address the concerns raised by the IMF regarding inflated pension costs. By implementing this scheme, the government aims to foster fiscal sustainability and ensure long-term financial stability in the country.

An Overview of the Voluntary Pension Scheme

To start, the VPS provides a framework for individuals to save for retirement through contributions during their working life. Established under the Voluntary Pension System Rules 2005, it allows both employed and self-employed persons to voluntarily contribute to a pension fund. 

The only way to accumulate enough resources for retirement is to systematically contribute to a pension account. Furthermore, the VPS is regulated by the Securities and Exchange Commission of Pakistan who oversees pension fund managers and protects investors.

Key Features of the Voluntary Pension Scheme

• Some noteworthy characteristics of the VPS include its long-term investment horizon, security through a trust structure, diversification over multiple sub-funds and tax benefits. 
• Pension funds are designed for the long haul to ride market ups and downs. Contributions are held separately from management through a trustee. 
• Participants have a choice between equity, debt, money market and commodity sub-funds. 
• Tax credits are available on contributions as well as lump sum withdrawals at retirement.

Also Read: Nita Ambani Necklace Worth 400-500 Crores

Structure and Regulations of the Pension Scheme

• Moving forward, the VPS framework separates fund management from custody through a pension fund trust. 
• Registered asset management or life insurance firms can operate as pension fund managers. SECP approves constitutive documents and regulates investment allocation policies. 
• The pension scheme is governed by Voluntary Pension System Rules and SECP circulars alongside relevant tax and trust laws.

Contribution, Investment, and Benefit Stages

Next, the VPS involves three key stages. Contributions are credited tax-efficiently to open individual pension accounts. Allocations are made between sub-funds according to an age-based scheme selected by the participant. Over the investment phase, returns accumulate these funds for retirement. Finally, benefits may be taken as a lump sum or through income plans at retirement age.

Performance Measurement – Voluntary Pension Scheme

However, pension investments face market risks like those affecting other capital market instruments. These include credit, interest rate, liquidity and overall volatility risks. 

Participants thus need to maintain a long term view. Fund performance is best evaluated against peers, capital market returns and growth in individual account balances over time.

A New Voluntary Pension Scheme for Government Employees

As per recent reports, the government plans to introduce a fresh voluntary pension scheme from July for new government recruits. This new system aims to address IMF concerns over public pension liabilities and streamline the process. 

Under this scheme, government employees will now receive a pension instead of provident funds or lump sum gratuity payouts post-retirement, ensuring steady income in old age. The SECP has proposed implementing similar pension reforms in both public and private sectors for universal coverage.

Conclusion 

In conclusion, the introduction of a universal voluntary pension scheme presents an important step towards ensuring retirement income security for all citizens. By transitioning government employees onto this system, Pakistan aims to address IMF sustainability concerns while reforming pensions. 

Overall, the VPS framework establishes regulated saving avenues to protect individuals’ financial needs in older age if contributions are made diligently during the working life stage.

Join us on Instagram

FAQs About Voluntary pension scheme

Before concluding, here are answers to some commonly asked questions on the VPS:

Q1. How often are contributions required to the pension account?

A1. There is no set frequency, participants can contribute whenever suitable for their financial planning.

Q2. What tax incentives are available on VPS contributions?

A2. An annual tax credit is allowed up to 20% of taxable income or the actual contribution amount, whichever is lower.

Q3. Is fund performance tracking simple for investors?

A3. Yes, pension fund managers must provide bi-annual account statements and calculations of unit prices are transparent.

Reference 

Govt introducing new pension scheme for employees from July 1st