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ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has decided to amend the Voluntary Pension System (VPS) regulatory framework to introduce employer-specific pension funds similar to retirement plans in the USA.

SECP officials told Business Recorder that the SECP has decided to amend the Pension System (VPS) Rules to address development of annuity market, utilization of life insurance distribution network and awareness of the voluntary pension schemes in the corporate and public sector.

In line with the recommendations of the Pension and Annuity Working Group set up by the Commission, and extensive industry and stakeholder engagement, necessary work was initiated for amendments in the VPS Rules to address development of annuity market, utilization of life insurance distribution network and awareness of the voluntary pension schemes in the corporate and public sector.

VPS sector: 22 pension funds worth Rs40bn show promising growth: SECP chief

In this regard, the SECP is currently in the process of amending the VPS regulatory framework to introduce employer specific pension funds similar to retirement plans in the USA and allowing asset management companies to offer various types of annuity plans of pension payments including life contingent annuities to VPS participants at the time of retirement.

Moreover, the government of Khyber Pakhtunkhwa in close coordination with SECP initiated pension reforms through provincial legislation resulting in the introduction of a Defined Contributory Pension Scheme for its new service entrants from 2022-23, under the VPS framework.

They said that the amendments in investment framework of the VPS framework has been revamped to foster development of VPS schemes and contribute to a significant savings dimension and economic growth by removing the restriction on transfer of individual pension account from one pension fund manager to another or from one pension fund to another.

To incentivize the pension fund managers, the regulatory cap on management fee has been removed and the concept of Expense Ratio has been introduced for pension funds to bring them in line with mutual funds. Further, in order to encourage employers into offering VPS as a retirement benefit, for the first time, pledging of individual pension account for loan or advance given by the employer to the employee has been allowed.

The SECP has issued guidelines which set out principles and requirements applicable to mutual fund digital distribution platforms for Collective Investment Schemes (CIS) and or Voluntary Pension Funds (VPS). These guidelines will also apply to all licensed Investment Advisors and Securities Advisors in conducting their licensed/regulated activities relating to order execution and/or advisory services in respect of distribution of CIS/ VPS units through online platforms.

The SECP has introduced various innovative asset classes and allocation structures for pension fund assets. Circular 12 of 2021 issued by SECP has allowed of pension funds to invest in Real Estate Investment Trusts, Private Equities, Venture Capital Funds and Exchange Traded Funds.

For the first time, pension funds have been allowed passive investment strategy in the form of Index sub fund. Moreover, investment limit for IPO and pre-IPO has been increased from 5 percent to 10 percent. VPS participants have been provided flexibility to change allocation ratios of their accounts and they have also been allowed to freeze their portfolio allocation and percentages at a point in time.

The amendments to the Voluntary Pension System (VPS) Rules were proposed to address the development of the annuity market and utilization of the life insurance distribution network.

The SECP has allowed pension funds to invest in REITs, Private Equities, Venture Capital Funds and ETFs. Moreover, pension funds have also been allowed passive investment strategy in the form of Index sub-fund.

The total assets of 22 pension funds managed by 14 Pension Fund Managers (Voluntary Pension Systems) stood at Rs41.64 billion as on June 30, 2022. This asset class also witnessed a growth of 4.9 percent in 2022, they added.

Copyright Business Recorder, 2023

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