Voluntary pension schemes gain popularity
Assets increase to Rs13.8 billion at the end of 2014-15
DESIGN: MOHSIN ALAM
KARACHI:
Voluntary pension schemes managed by asset management companies seem to be getting popular in Pakistan, latest statistics show.
Assets of pension funds clocked up at Rs13.8 billion at the end of the last fiscal year, up a whopping 66.7% from a year ago, industry-wide data compiled by the Securities and Exchange Commission of Pakistan (SECP) shows.
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Voluntary pension schemes provide individuals with a long-term savings-cum-investment plan for their post-retirement lives. These schemes allow individuals to put away their monthly savings in a balanced investment scheme managed by a fund manager of an asset management company. They allocate the funds in high-risk (equity), moderate-risk (debt) and low-risk (money market) investment avenues based on individuals’ risk tolerance and return expectations.
Nine asset management companies operated 17 pension funds in Pakistan at the end of 2014-15. The number of pension funds was 13 in the preceding fiscal year, as ABL Asset Management and National Investment Trust (NIT) introduced two pension funds each during 2014-15.
Weighing in
In a recent report, the regulator of the asset management industry called the growth in the assets of voluntary pension schemes in 2014-15 “remarkable progress”. It added that voluntary pension schemes are going to gain a strong foothold in Pakistan’s financial market.
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“Voluntary pension schemes provide an advantage to both the individual and the employer who can invest in a long-term savings product, which is regulated and adequate checks and balances have been incorporated in the regulatory framework for investor protection,” the SECP said.
Globally, assets under pension funds exceed those under typical mutual funds. However, the situation in Pakistan is different. Assets under pension funds equalled only 3.3% of the assets under the management of open-end mutual funds at the end of 2014-15.
In an interview with The Express Tribune, Atlas Asset Management CEO Habibur Rahman said the pace of growth in the assets of pension funds should be a lot higher than the current rate.
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Data analysis
The compound annual growth rate of the assets of voluntary pension schemes for eight years to 2014-15 has been 54.8%. But the annualised growth rate seems less impressive after taking into account the low-base effect. Pension funds are a relatively recent phenomenon in Pakistan, as their assets amounted to just Rs420 million in 2007.
Although Rahman acknowledges the considerable ‘real’ growth in the assets of pension schemes during 2014-15, he says market participants should refrain from indulging in self-congratulatory applause.
“A major chunk of the increase in the assets of pension schemes last year came in the form of seed capital,” Rahman said while referring to the regulatory requirement about the initial capital that a fund manager must put in to set up a new pension fund.
Moreover, income gets accumulated in the absence of dividends as far as pension funds are concerned. This is another reason for the unusually high growth rate in the assets under voluntary pension schemes last year, Rahman said.
Published in The Express Tribune, November 5th, 2015.
Voluntary pension schemes managed by asset management companies seem to be getting popular in Pakistan, latest statistics show.
Assets of pension funds clocked up at Rs13.8 billion at the end of the last fiscal year, up a whopping 66.7% from a year ago, industry-wide data compiled by the Securities and Exchange Commission of Pakistan (SECP) shows.
Pakistan: GE announces $50 million investment plan
Voluntary pension schemes provide individuals with a long-term savings-cum-investment plan for their post-retirement lives. These schemes allow individuals to put away their monthly savings in a balanced investment scheme managed by a fund manager of an asset management company. They allocate the funds in high-risk (equity), moderate-risk (debt) and low-risk (money market) investment avenues based on individuals’ risk tolerance and return expectations.
Nine asset management companies operated 17 pension funds in Pakistan at the end of 2014-15. The number of pension funds was 13 in the preceding fiscal year, as ABL Asset Management and National Investment Trust (NIT) introduced two pension funds each during 2014-15.
Weighing in
In a recent report, the regulator of the asset management industry called the growth in the assets of voluntary pension schemes in 2014-15 “remarkable progress”. It added that voluntary pension schemes are going to gain a strong foothold in Pakistan’s financial market.
Auditing pension system: Minister orders probe of 600,000 ‘ghost pensioners’
“Voluntary pension schemes provide an advantage to both the individual and the employer who can invest in a long-term savings product, which is regulated and adequate checks and balances have been incorporated in the regulatory framework for investor protection,” the SECP said.
Globally, assets under pension funds exceed those under typical mutual funds. However, the situation in Pakistan is different. Assets under pension funds equalled only 3.3% of the assets under the management of open-end mutual funds at the end of 2014-15.
In an interview with The Express Tribune, Atlas Asset Management CEO Habibur Rahman said the pace of growth in the assets of pension funds should be a lot higher than the current rate.
Federal auditors to probe 0.6m ‘ghost pensioners’
Data analysis
The compound annual growth rate of the assets of voluntary pension schemes for eight years to 2014-15 has been 54.8%. But the annualised growth rate seems less impressive after taking into account the low-base effect. Pension funds are a relatively recent phenomenon in Pakistan, as their assets amounted to just Rs420 million in 2007.
Although Rahman acknowledges the considerable ‘real’ growth in the assets of pension schemes during 2014-15, he says market participants should refrain from indulging in self-congratulatory applause.
“A major chunk of the increase in the assets of pension schemes last year came in the form of seed capital,” Rahman said while referring to the regulatory requirement about the initial capital that a fund manager must put in to set up a new pension fund.
Moreover, income gets accumulated in the absence of dividends as far as pension funds are concerned. This is another reason for the unusually high growth rate in the assets under voluntary pension schemes last year, Rahman said.
Published in The Express Tribune, November 5th, 2015.