iRetire

Pension Fund means a fund made up of sub-funds created from the contributions paid by the Participants and would consist of all the assets for the time being held or deemed to be held by subfunds and includes all income or investment returns thereon but excludes fees, charges and expenses related to the management of the investments of sub-funds.

A Pension Fund shall be in the form of a unit trust scheme and such fund must be made up of an equity sub-fund, debt sub-fund, a money market sub-fund and may have other sub-funds, if approved by the Securities and Exchange Commission of Pakistan (“SECP”).

Participant means any person who has contributed or on whose behalf contributions are made into one or more pension funds and held in one or more identifiable individual pension accounts managed by one or more Pension Fund Managers.

Pension Fund Manager means an asset management company or a life insurance company duly authorized by SECP to efficaciously manage the contributions made by or on behalf of Participants in Pension Fund and meet such other conditions as may be prescribed from time to time by SECP.

Unit means an undivided share in a sub-fund of the Pension Fund

Voluntary Pension System (VPS) Scheme is a defined contribution Pension Fund, that facilitates individuals to save for their retirement in a systematic and disciplined manner and is governed by Voluntary Pension System Rules, 2005.

VPS Scheme is run by a Pension Fund Manager who manages the voluntary contributions made by a Participant, whether employed or not, or by an employer on his behalf, based on Voluntary Pension Scheme Rules, 2005 (“VPS Rules”). It is a saving mechanism where an individual save from his/her current income in order to retain financial security and comfort in terms of regular income after retirement.

VPS provides a steady income given to a person (usually after retirement). It is a saving, or a contribution, which is collected during the working life of the participant and invested for profit. After the opted retirement date, the account holder is entitled to a steady monthly income from a fund built up from the earlier savings.

• The Voluntary Pension System Rules, 2005;
• The Non-Banking Finance Companies and Notified Entities Regulations, 2008;
• Income Tax Ordinance, 2001; and
• The Companies Act, 2017.

All Pakistani nationals over the age of eighteen (18) years who have a valid National Tax Number or, a Computerized National Identity Card (CNIC) or National Identity Card for Overseas Pakistanis (NICOP) shall be eligible to contribute to the VPS Scheme.

The retirement age for the participants shall be any age between sixty and seventy years or twenty-five years since the age of first contribution to a pension fund, whichever is earlier:

Provided that the participant may change his retirement age between sixty and seventy years by giving notice in writing to the Pension Fund Manager

Eligible person(s) themselves as well as along with their employers are allowed to contribute into one or more Pension funds. The amount of contribution can be paid in one lump sum or in installments into one or more Pension Funds.

A participant shall be allowed to transfer his accumulated sum from an approved occupational savings scheme or an approved superannuation fund to a pension fund.

No charge whatsoever called shall be deducted for transfer of the individual pension account from one Pension Fund Manager to another Pension Fund Manager or from one pension fund to another pension fund and from approved occupational savings scheme and approved superannuation fund to a pension fund

The transferred amount shall be used to purchase the units of the sub-funds of the pension fund maintained by the new Pension Fund Manager at the net asset value notified at the close of the working day, of the receipt amount, on such percentage according to the specified 84 allocation policy selected by the participant.

Minimum initial amount is Rs. 10,000/-.

In order to properly build a pension fund, one should have to first determine the amount required on a monthly basis after the time of retirement. In addition, one will have to work out how much will he/she need to set aside on a monthly basis to come with a lump sum amount large enough to create an annuity, which provides a desirable monthly income after retirement.

A fund’s Net Asset Value (NAV) represents the value per unit at a given point of time. The NAV is equal to the market worth of assets held in the portfolio of a Fund, minus liabilities, divided by the number of units currently issued to participants.

NAV Per Unit = (Current Market Value of all the Assets – Liabilities) / Total Number of Units Outstanding

The sales and redemption price of units might be different from the NAV if there is an element of “Sales Load / Front End Load” or “Back End Load”. The sale and redemption price is declared on a daily basis by the fund manager on its websites – https://www.mcbfunds.com/daily-funds-mobile/

An investment allocation scheme, which provides an opportunity to create a personalized retirement fund through regular contributions, with allocations adjusted according to the age & risk taking capacity of the investor.

It provides following options to the participants to select a Pension Allocation scheme according to their requirements:

Table 1: Allocation Schemes for a pension Fund having three (3/4) Sub-funds

* Volatility here means the downwards or upwards change in principal amount invested owing to change in price of the securities in the portfolio of a sub-fund.

Table 2: Allocation Schemes for a pension Fund having four (4/5) Sub-funds

Yes, at any point of time during the year.

Rates of return under VPS are market driven, however, historical returns in various avenues of investment are considered for the purpose of illustrations. They can be referred from monthly Fund Manager Report (FMR) from MCB Funds website https://www.mcbfunds.com/downloads-2-2/fund-managers-reports/

The participant can contribute any time at his/ her own convenience.

Profit will not be distributed to the participant, it will accumulate with the investment and after retirement participant can get the benefits. However, in case of early withdrawal of any amount it will be subject to deduction of applicable taxes.

The term of the allocation scheme would depend on the age of the investor, as the allocation scheme can mature any time between 60 and 70 years or the age which he/she will be after 25 years from the date of first contribution into a VPS; whichever comes first. However, the participant is free to redeem as and when desired, with returns up to the day of redemption and payment of tax thereon (if applicable).

When the Participant decides on his retirement age which can be any date between sixty and seventy years, the Participant is required to inform the Pension Fund Manager the chosen date of retirement by completing the prescribed Retirement Option Form and submitting it at the Authorized Branch or office of the Distribution Companies at least thirty days before the chosen date of Retirement.

Participants have the following options:

(a) to withdraw up to fifty per cent or such percentage of the amount from his individual pension account as cash which is permissible under the Income Tax Ordinance, 2001 (XLIX of 2001) and subject to payment of tax as required thereunder ;

(b) to use the remaining amount to purchase an annuity from a Life Insurance Company of his choice; or

(c) to enter into an agreement with the Pension Fund Manager to withdraw from the remaining amount, monthly installments for up to fifteen years following the date of retirement, according to an income payment plan, approved by the Commission.

(d) the transfer of an individual income payment plan account from one Pension Fund Manager to another Pension Fund Manager or from one income payment plan to another income payment plan shall only take place once in a financial year and notice for the change, specifying the name of new Pension Fund Manager and the income payment plan shall be sent by the participant at least seven working days before the effective date of the proposed change. 

(2) At the expiry of the income payment plan according to clause (c) of sub-rule (1), the participant shall have option to use the outstanding balance in his individual pension account to purchase an annuity from a Life Insurance Company, of his choice or buy an income payment plan for another term or withdraw the amount from his account.

A Participant would be eligible to opt for an Income Payment Plan, at any time, after achieving the retirement age.

When the Participant decides to start taking pension benefits, the participant first decides whether he/she wants to take a tax free cash sum. If the Participant decides to draw tax free cash, the sum of cash is transferred to the respective bank account of the participant and the balance amount breaks down into two parts: i.e. Part-A and Part-B:

Part A: Invests in the approved PIPF Debt Sub-Fund that targets to earn at least inflation, to provide a regular and stable real income (purchasing power) every month throughout drawdown period. A portion of Part-A which will be used to pay current year monthly pensions, will be invested in the approved PIPF Money-Market Sub Fund to further reduce volatility. The portion of the Individual Pension Account to be placed in Part A will be calculated as follows:

For this purpose, the insurance company assumes a life-expectancy of 85 years for an individual aged 75 (willing to purchase an annuity).

Each month a payment is withdrawn from this accumulated balance (in PIPF Money Market Fund) according to the following formula:

Two things are evident from this formula:

This would ensure that Part A reduces to zero by the end of the drawdown period and not before that. At end of the Drawdown period, an Approved Annuity Plan will be purchased with the balance in Part B.

Monthly Pension will not remain constant throughout, instead is expected to increase each month due to the investment income earned on money market investments.

Monthly Payments under the Income Payment Plan shall be subject to tax at the then tax rates applicable to that individual.

Part B: Invests in the approved PIPF Equity Sub-Fund and PIPF Debt Sub Fund till termination of Income Payment Plan. At the time of termination of Income Payment Plan, total balance in this Part shall be used to purchase an Approved Annuity Plan from an insurance company of the Participant’s choice.

The portion of accumulated balance to be placed in Part B will be calculated as follows:

The portion of accumulated balance Placed in Part-B will be invested in both the approved PIPF Equity Sub-Fund and PIPF Debt Sub-Fund as per the following table:

Part B — Allocation Scheme

Years to termination of Income Payment Plan are complete years to termination of Income Payment Plan at any date. So 3.1 or 2.9 years would be considered 3 years for the purpose.

This table illustrates percentages set at different durations of Income Payment Plan. However, the risk that Part B over the period invested does not rise in value as much as expected which may lead to lower real monthly annuity compared to the last withdrawn monthly pension from the Income Payment Plan.

Drawing from the Income Payment Plan will commence after completing one month in the Plan. The payment will be made on the 25th day of every month, (or the first working day following that in the event the 25th is a closed day). MCB Funds will issue the instructions to the Trustee to credit the amount to the Participants designated banker.

Fees and Charges will be charged in line with the provisions of the Trust Deed/ Offering Document. The Commission may review the fees specified from time to time and any change shall also be applicable to the Income Payment Plan.

In case of death of a participant before the completion of the Income Payment Plan, all the units of the sub-funds in Part A and Part B to his credit shall be redeemed at the net asset value notified at close of the day of intimation of death and the amount due shall be credited to his Individual Pension A count, which shall earn the applicable market rate of interest for such deposits.

The total amount in the Individual Pension Account of the deceased participant shall be divided among the nominated survivors according to the percentages specified in the nomination deed and each of the nominated survivor shall then have the following options, namely:

1. Withdraw his share of the amount subject to the conditions laid down in the Income Tax Ordinance 2001 (XLIX of 2001);

2. Transfer his share of the amount into his existing or new individual pension account or income payment plan account to be opened with a Pension Fund Manager, according to VPS Rules;

1. Use his share of the amount to purchase an annuity on his life from a Life Insurance Company, only if the age of the survivor is fifty- five years or more;
2. Use his share of the amount to purchase a deferred annuity on his life from a Life Insurance Company to commence at age fifty- five years or later.

There is no maximum term for the Income Payment Plan as long as the plan terminates at or before age 75, at which point the individual has to purchase an annuity or withdraw the funds after paying tax on them. Plan must however be of at least one complete year.

The Participants have the options during the tenure of the Income Payment Plan to transfer the remaining balance (Part A & Part B) to another Pension Fund Manager or life insurance company to purchase an Approved Income Payment Plan or an Approved Annuity Plan respectively. No fee will be charged to participants in case of incoming transfers into the Income Payment Plan.

In the event of winding up of the Pakistan Islamic Pension Fund the units standing to the credit of the Participants will be dealt with in the light of VPS Rules, 2005 and Trust Deed/ Offering Document.

Should there be any changes in the Income Tax Ordinance or due to any directive given by the Commission under the Voluntary Pension System Rules in respect of the Income Payment Plan, the Pension Fund Manager may vary the benefits and conditions as directed by the Commission. Notice in writing of any such variation shall be sent to last address of the individual recorded by the Pension Fund Manager.

The Income Payment Plan of MCB Funds has been approved by the Commission. However, it must be distinctly understood that such Approval or authorization neither implies official recommendation by the Commission to contribute into the Pension Fund nor does the Commission take any responsibility for the financial soundness of the Income Payment Plan offered by MCB Funds.

• • The Sub-Fund(s) target return cannot be guaranteed. The portfolio of the Sub Fund(s)is subject to market fluctuations and risk inherent in all such It should be noted that the value/price of Units of the Sub-Funds can fall as well as rise.
  • Income drawdown will reduce the size of accumulated balance and the investment growth may not be sufficient to maintain the level of income. The level of income taken out may need to be reviewed if the balance amount becomes too small.
  • Investment performance may be lower than the assumptions made.
  • The income received may be lower or higher than the amount that could have been received from an annuity, depending on the performance of investments.
  • As annuity rates can change substantially and rapidly, there is no guarantee that at the time of purchasing an annuity, the rates will be favorable.
  • The Units of Sub-Funds are not bank deposits and are neither issued by, insured by, or the obligation of the Commission, any Government agency, any of the shareholders or the Pension Fund Manager, or any other bank or financial institution.

  Conversely, purchasing a life annuity at retirement is advised in the following circumstances:

  • The retiree expects to live longer than the average life expectancy assumed in annuity prices.
  • The retiree is of the view that interest rates would fall in future.

The withdrawal of 50% at the time of Retirement age remains tax free, however, over and above amount shall be subject to payment of tax @ of participant’s average tax rate of the preceding three tax years.

Not necessarily. The entire amount can be shifted for Income Payment Plan or 50% tax free can be withdrawn.

A participant at any time before retirement shall be entitled to redeem the total or part of his/her accumulation subject to payment of tax on full amount withdrawn at his/her average tax rate of the preceding three tax years.

Pension funds are similar to other open-end funds in terms of their returns. However, they are regulated under VPS Rules, 2005 and NBFC & NE Regulations, 2008; while Open end funds are regulated under NBFC & NE Regulations 2008. Tax Credit is available on VPS Investment as per Section 63 of Income Tax Ordinance, 2001, for individuals who also have some source of income in Pakistan.

No.

E-statement is sent on each transaction and on monthly basis. However, participant can request MCB funds for e-statement.

Yes

Participant may change his retirement age between sixty (60) and seventy (70) years by giving notice in writing to the Pension Fund Manager

VPS Rules does not allow for opening of more than one accounts with same pension fund manager.