Punjab mulls to launch Defined Contribution pension scheme (VPS)

Punjab mulls to launch Defined Contribution pension scheme (VPS)

ISLAMABAD: After Khyber Pakhtunkhwa (KP), the Punjab government is now considering introducing a Voluntary Pension System (VPS) to replace the existing traditional pension setup, to reduce the financial burden on the provincial budget.

Briefing the media on Monday, the senior management of the Securities Exchange Commission of Pakistan (SECP) revealed that the Punjab government has formally approached the commission for support in implementing the VPS. The move was previously hinted at in the province’s budget strategy paper for financial years 2025 and 2026.

Since the SECP has upgraded the VPS Rules 2005 to the level of Employers Pension Scheme (EPS), it is likely that the EPS will be implemented in Punjab from the fiscal year 2024-25 starting from July this year for all new inductees as provincial employees. 

Briefing media, Khalida Habib, Executive Director of the Specialised Markets Division, explained that amendments to the regulatory framework now permit employers in both the public and private sectors to offer wide-ranging plans for retirement savings.

To modernise the pension scheme landscape amendments have been made in the VPS rules, but Pakistan faces significant pension challenges.

Commissioner-SECP Abdul Rehman Warraich said that pension reforms were essential in the country and not only for government employees but also for the private sector.   

He highlighted that the federal pension bill ballooned from Rs 150 billion in 2020 to Rs480 billion in 2021, whereas the federal government’s unfunded liability currently stands at around Rs 3 trillion.

At the same time, the Provincial governments have seen similar exponential increases in pension bills, rising from Rs 75 billion in 2011 to Rs 500 billion in 2020. 

“Without reforms, the federal pension bill is projected to reach Rs 750 billion by 2023, with provinces likely to face similar challenges, and many state entities even failing to pay pensions to their retired employees,” Mr Warriach added.  

The structure of the Employer Pension Fund includes the definition of “Employer” which is group companies, holding companies, and Federal / Provincial Governments for all participants employed in their respective owned/controlled institutions/authorities / local Governments.

Life insurance companies, asset management companies, and investment advisors registered as pension fund managers can offer a range of employer pension funds.

Currently, the total assets under the pension fund managers’ accounts are more than Rs 61.32 billion.

According to the provincial budget for FY23 Punjab’s pension bill stood at approximately Rs 312 billion which is more than 12% of the total provincial revenue. This was 20% higher than FY22, and under the current pension regime, the pension bill for the upcoming years is expected to grow at a similar rate. 


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