WHAT IS VOLUNTARY PENSION FUND?
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.
WHAT IS NIT PENSION FUND?
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. NIT Pension Fund can help participants to accumulate savings overtime to achieve the financial security they desire after retirement.
WHO CAN JOIN AND CONTRIBUTE TO NIT PENSION FUND?
Following individuals are eligible to join NIT Pension Fund and NIT 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:
- Employers on behalf of their employees.
- A member of approved Provident Fund to transfer his / her balance to the Pension Fund.
WHAT IS AN INDIVIDUAL PENSION ACCOUNT?
Each Participant is required to open an Individual Pension Account. All contributions received from the Participant are credited to his/her Individual Pension Account.
CAN A PARTICIPANT HAVE MORE THAN ONE PENSION ACCOUNT?
Yes, a Participant can have more than one Voluntary Pension Scheme (VPS) accounts.
WHAT IS THE MINIMUM INITIAL AND SUBSEQUENT AMOUNT?
A Participant can open a VPS account with a minimum investment of Rs 10,000 and subsequent contributions of Rs 1,000.
STRUCTURE / ALLOCATION SCHEME
Both NIT Pension Fund and NIT Islamic Pension Fund comprises of the following four sub-funds:
DEBT SUB-FUND
Aims to provide income along with capital preservation. Invests primarily in tradable debt securities with a max weighted average maturity of 5 years.
EQUITY SUB-FUND
Aims to achieve long-term capital growth. Invests minimum 90% of NAV in listed shares.
MONEY MARKET SUB-FUND
Aims to provide regular income along with capital preservation. Maximum average maturity of 90 days (Islamic max 1 year).
COMMODITY SUB-FUND
Invests in commodities, especially gold futures via PMEX. Provides higher returns with up to 70% exposure in gold contracts.
WHAT IF THE PARTICIPANT DOES NOT CHOOSE ANY ALLOCATION SCHEME?
If no allocation scheme is selected, the Pension Fund Manager will allot the Life Cycle Allocation Scheme.
WHAT IS LIFE CYCLE ALLOCATION SCHEME?
Specifies how allocations change with age: higher equity at 18 years, gradually shifting to Debt and Money Market Funds.
IS CHANGE IN ALLOCATION SCHEME ALLOWED?
Yes. A participant can change from one Allocation Scheme to another.
WHAT DATE CAN A PARTICIPANT SELECT AS A RETIREMENT AGE?
Between 60–70 years or after 25 years of joining VPS (whichever comes first).
HOW MUCH TAX CREDIT?
Up to 20% of taxable income for the relevant tax year.
CAN A PARTICIPANT INVEST IN BOTH MUTUAL FUNDS AND PENSION FUNDS?
Yes, but tax credit can only be availed under Pension Fund in the same year.
HOW CAN TAX CREDIT BE CLAIMED?
Salaried participants: provide Account Statement to HR. Self-employed: claim in annual returns.
ADDITIONAL QUESTIONS
CAN A PARTICIPANT CONTINUE TO CLAIM INVESTMENT ALLOWANCE EACH YEAR?
No, only for the year investment is made.
EMPLOYER CONTRIBUTIONS?
Yes, tax-deductible expense as per Income Tax Ordinance.
CHANGE OF FUND MANAGER?
Allowed once in a financial year with 7 days’ notice.
SWITCH TO ISLAMIC PENSION FUND?
Yes, allowed once a year.
DIVIDENDS?
No dividends under VPS. Income accumulates in participant’s account.
TRANSFER FEES?
No fee/load on transfers.
CONVERT FROM MUTUAL FUND TO VPS?
Yes, by redeeming and submitting third-party letter.
TRANSFER PROVIDENT FUND BALANCE?
Yes, but tax credit not allowed on transferred amount.
Average Rate of Tax Example
| 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 / Total Taxable Income = 808,500 / 7,200,000 × 100 = 11.23%
WHAT HAPPENS IN CASE OF DEATH OF A PARTICIPANT?
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.
WHAT ARE THE OPTIONS AVAILABLE TO THE PARTICIPANT’S NOMINEES IN CASE OF DEATH OF PARTICIPANT?
- 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 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 55 years or more;
- Use it to purchase a deferred Approved Annuity Plan on his/her life from a Life Insurance Company to commence at age 55 years or later.