Islamic Pension Funds are more popular in Pakistan for the purpose of investments and savings when compared to conventional or interest-based Pension Funds. Their assets value has increased to Rs. 16 billion out of the overall Rs. 25 billion by the end of the financial year 2016-17.
According to data released by the Security Exchange Commission of Pakistan (SECP), the private pension fund industry grew by over 32% during FY 2016-2017, and the total assets of the industry crossed Rs 25 billion.
The growth in the pension industry has primarily resulted from an increase in participation by general investors and better performance of the stock market.
A majority of investors preferred Sharia-compliant pension products over conventional products. Presently, there are 19 pension funds operating in the market, out of which 10 are Sharia compliant and 9 are conventional.
Private pension funds have more than 18,000 participants having assets, with nearly 60% invested in the equity market. These funds were introduced in 2007 under the 2005 Voluntary Pension System Rules. These funds are managed by 10 fund managers, who have vast experience in managing pooled investments.
The pension funds provide participants with options to invest in securities and commodities. Participants can choose allocation policies that are in line with their risk and return preferences. The fund managers, depending on an asset class, charge a fee ranging from 0.5% to 1.5% per annum. Fund managers can also charge sales load up to 3% of the contribution. However, the SECP has issued a directive restraining pension fund managers to charge sales load if investors themselves approach the fund manager for investment.
All persons holding CNICs can join pension funds and get the tax credit of up to 20% of taxable income. People above 40 years of age can get even higher tax benefits.
Participants can choose retirement age between 60 to 70 years. On retirement, they can withdraw up to 50% of the accumulated balance in the lump sum and the remaining 50% in installments, as the pension.