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Pension Funds

 

Voluntary Pension Scheme (VPS) is a pool of investment owned by investors and managed by a licensed Pension Fund Manager. It facilitates individuals to save for retirement in a systematic and disciplined manner.

Pension Fund provides a regular source of income to maintain the living standard and meet post retirement expenses. A regular income stream enables an individual to spend quality time with family, traveling, and pursuing other interests which were put aside earlier owing to busy work schedule. NAFA Pension Fund can help participants to accumulate savings overtime to achieve the financial security they desire after retirement.

Following individuals are eligible to join NAFA Pension Fund and NAFA Islamic Pension Fund:

  • Pakistani Nationals holding valid National Tax Number (NTN) or Computerized National Identity Card (CNIC).
  • Non-resident Pakistanis holding valid NTN or CNIC or National Identity Card for Overseas Pakistanis (NICOP).

The following can also contribute in NAFA Pension Fund and NAFA Islamic Pension Fund:

  • Employers on behalf of their employees.
  • A member of approved Provident Fund to transfer his / her balance to the Pension Fund.

Each Participant is required to open an Individual Pension Account. All contributions received from the Participant are credited to his/her Individual Pension Account.

Yes, a Participant can have more than one Voluntary Pension Scheme (VPS) accounts.

A Participant can open a Voluntary Pension Scheme (VPS) account with NBP Funds with a minimum investment of Rs 10,000 and for subsequent contributions the minimum threshold is Rs 1,000.

Both NAFA Pension Fund and NAFA Islamic Pension Fund comprises of the following three sub-funds:

  • Equity Sub-Fund
  • Aims to achieve long term capital growth. The Equity sub-fund shall invest primarily in equity securities, with a minimum investment of 90% of its Net Asset Value in listed shares.

  • Debt Sub-Fund
  • Aims to provide income along with capital preservation. The Debit sub-fund shall invest primarily in tradable debt securities with a maximum weighted average maturity of five years.

  • Money Markey Sub-Fund
  • Aims to provide regular income along with capital preservation. The Money Market sub-fund shall invest primarily in short term money market securities with the maximum average maturity of 90 days. Islamic Money Market Sub-Fund’s average maturity cannot exceed 1 year.

In case no allocation scheme has been selected by the Participant, the Pension Fund Manager will allot the Life Cycle Allocation Scheme to that Participant.

Life Cycle Allocation Scheme specifies how the allocations in sub-funds will change based on the participant’s growing age. Starting with a higher equity investment allocation for an individual aged 18 years, the equity allocation is gradually reduced and transferred to Debt and Money Market Funds

Yes. A participant can change from one Allocation Scheme to another twice in a Financial Year.

Participant can choose his/her age of retirement between sixty and seventy years or after 25 years of joining VPS, whichever comes first. However, participant is required to submit a notice of redemption to NBP Funds thirty days prior to the chosen date of retirement.

In addition to a tax credit up to 20% of the taxable income, investor joining VPS at the age of 41 and above are entitled to an additional rebate (catch up) of 2% p.a. for each year of age exceeding 40 years to a cap of 30%. Thus, an individual joining VPS at the age of 45 can claim a tax credit of up to 30% of his/her taxable income.

Yes, one can concurrently invest in Mutual Funds and Pension Funds to avail tax credit facility under both investments in the same year.

Salaried Participants can claim tax credit by simply providing the Account Statement issued by Pension Fund Manager to their Human Resource Department with the request to reduce the tax liability accordingly. Self-employed individuals can reduce their annual tax liability at the time of filing their annual Income Tax Returns by the tax credit allowed on the amount of eligible investment in VPS.

No, Participants can only avail tax credit for the Tax Year on investments made in that particular year in VPS.

Yes, contributions made by the employer on behalf of the employees in NAFA Pension Fund and NAFA Islamic Pension Fund are a tax-deductible expense as defined under clause 3(c) of the Definitions of the Income Tax Ordinance, 2001.

Yes, Participants can change the Pension Fund Manager once in a Financial Year by giving a notice prior to at least 7 working days, as per section 15 (4) of VPS Rules, 2005.

Yes, a participant can change the Pension Fund once in a Financial Year by giving a 21 days' notice.

As per clause 10 of schedule II – VPS Rules 2005, distribution of dividend shall not be allowed under VPS. However, the income earned by the participant is accumulated in the participant's account and can be withdrawn any time. (subject to the provisions of Income Tax Ordinance 2001).

Yes, a participant can convert his/her mutual fund investment into VPS by redeeming the mutual fund investment and submitting third party letter in favor of NBP Funds Pension Schemes.

Yes, a participant can transfer his/her PF balance to VPS.

A participant cannot claim tax credit on accumulated amount transferred from PF to VPS.

If a participant suffers from any of the following disabilities, which render him unable to continue any employment he may, if he so elects, be treated as having reached the retirement age at the date of such disability and all relevant provisions shall apply accordingly,

  • loss of two or more limbs or loss of a hand and a foot;
  • loss of eyesight;
  • deafness in both ears;
  • severe facial disfigurement;
  • loss of speech;
  • paraplegia or hemiplegia;
  • lunacy;
  • advance case of an incurable disease; or
  • wounds, injuries or any other diseases, etc., resulting in a disability due to which the participant is unable to continue any work.

An assessment certificate from the Medical Board approved by the Commission will be required to confirm any of the disability specified in above.

At retirement, a Participant can choose any one of the following:

  • Redeem up to 50% of the amount accumulated in his/her Individual Pension Account which will be tax exempt tax free and remaining 50% by paying tax as per Income Tax Ordinance 2001.
  • Utilize the entire balance at retirement age or balance remaining from point (a) above to choose one of the following:
    • Purchase an Approved Annuity Plan from a Life Insurance Company of his/her choice; or
    • Enter into an Income Payment Plan with Pension Fund Managers for monthly installments for fifteen years. After fifteen years he/she can buy another Income Payment Plan or an annuity.

Participant may redeem all or partial units in his/her Account before attaining the retirement age. NBP Funds does not apply any penalty or fees for early withdrawal however, the amount so redeemed shall be subject to deduction of Income Tax at his/her average tax rate for the last three years.

Average Rate of tax will be calculated as follows
Tax Year Taxable Income Tax Amount
1 1,200,000 63,500
2 2,400,000 245,000
3 3,600,000 500,000
Total 7,200,000 808,500

Average Rate of Tax = Total Tax amount for three years / Total taxable Income for three years

808,500/7,200,000 x 100 = 11.23%.

In the unfortunate event of the death of a Participant, the nominees as mentioned in the Nomination Form shall be entitled to the balance held in Individual Pension Account of the deceased Participant.

The Nominee can avail the following options with his/her share of amount:

  • Withdraw his/her share subject to the conditions laid down in the Income Tax Ordinance: 2001 (XLIX of 2001);
  • Transfer it into his/her existing or new Individual Pension Account to be opened with the Pension Fund Manager, according to the Voluntary Pension System (VPS) Rules;
  • Use it to purchase an Approved Annuity Plan on his/her life from a Life Insurance Company, only if the age of the survivor is fifty-five years or more; or
  • Use it to purchase a deferred Approved Annuity Plan on his/her life from a Life Insurance Company to commence at age fifty-five years or later.