SECP Revamps Regulatory Framework for Voluntary Pension System

The Securities and Exchange Commission of Pakistan has revamped the Voluntary Pension System Rules, 2005, in light of the challenges to the growth and development of the voluntarily funded pension system in Pakistan, thus facilitating greater pension penetration in the country. Private pension funds established under the Voluntary Pension System (VPS) Rules are professionally managed savings-cum-investment vehicles that enable salaried and self-employed Pakistanis, including non-resident Pakistanis, to contribute during their professional lives and accumulate savings that will be available after their retirements. While maintaining the flexibility of individualized asset allocations, the reforms have introduced a number of measures, including easier transferability between pension fund managers and funds, additional flexibility to fund managers to allocate various expenses within the total permissible expense limit, allowance of pledging of a pension account against an employer loan, and the removal of the Securities and Exchange Commission of Pakistan’s (SECP) prior approval for VPS advertisements. Furthermore, in order to streamline the adjustments in the requirements over time, matters related to pricing, obligations, and the performance of the pension funds have been shifted from the VPS Rules to the Non-Bank Finance Companies Regulations, 2008. These reforms constitute important progression in ensuring protection for the elderly while safeguarding their sustainability in the future. It is expected that the revamped framework will pave the way for the growth of private pension funds, will enhance financial inclusion, will and provide much-needed depth to Pakistan’s capital markets.