SECP Issues New Investment and Allocation Policy for Pension Funds

The Securities and Exchange Commission of Pakistan (SECP) has released a new investment and allocation policy for the pension funds authorized under the Voluntary Pension System.

The SECP has revealed the new policy through the issuance of circular number 12 of 2021.

The SECP has issued a new policy to the Chief Executive Officers of Asset Management Companies, Mutual Funds Association of Pakistan, and Trustees of Collective Investment Schemes.

The new policy shall come into force with immediate effect and existing Pension Fund Managers shall ensure compliance with these requirements within 90 days of issuance of this circular.

Under the SECP’s investment policy, the investment policy covers both conventional and Shariah-compliant Pension Funds and the investment limits are relevant for both kinds of Pension funds unless specifically mentioned differently in the policy stated herein. The Pension Fund shall consist of three or more sub-funds.

A PFM shall specify in the offering document the type of securities, each sub-fund shall invest in, and the risks associated with an investment in such securities.

A Pension Fund Manager (PFM) shall invest assets of the Pension Fund in a transparent, efficacious, prudent and sound manner.

The Pension Fund Manager (PFM) shall have at least one investment committee (IC) which shall be responsible for selecting and developing appropriate investment and risk management strategies for the proper performance of the pension fund.

The IC will also be responsible for developing internal investment restrictions, limits and restrictions for pension funds and in case the same IC takes decisions for both mutual funds and pension funds, the decision taken for each kind of funds shall be separately identified and recorded in the minutes.

A PFM shall carry out necessary due diligence for executing investment and disinvestment decision(s) in security. Rating of an issue or the issuer, wherever mentioned herein below shall be only one of the factors to be considered by a PFM and it shall in no way be construed as a recommendation or permission of the Commission to any PFM to invest in any security solely on the basis of rating. However, a PFM shall ensure that the security and the issuer meet the minimum rating scale referred in the Investment Policy to stay qualified for continued investment.

A PFM shall deposit or place assets of Shariah Compliant Pension Fund with Islamic Commercial bank or Islamic window of a commercial bank. A PFM may open a current account with a conventional bank if it is in the interest of the pension fund to do so. The conditions for the opening of an account with a conventional bank shall remain the same as specified herein. A PFM shall invest assets of Shariah-compliant Pension Fund in those securities which are declared eligible by the Shariah Advisor of the Pension Fund.

A PFM shall not invest assets of Pension Fund in securities of a company if equity is less than paid-up capital of the company, irrespective of the limits stated in the Investment Policy. A PFM shall not invest or deposit or place assets of PF if the issuer or the bank of the security does not fulfill the minimum rating specified in the investment policy. A PFM shall adhere to the limits stipulated herein below; however, if the limits are breached merely due to corporate actions including take-up of right or bonus issue(s) or due to change in Net Assets resulting from fluctuation in the price of securities or due to withdrawals, the PFM shall regularize the deviation within tour months of the breach.

Under the allocation policy, the SECP revealed that a Pension Fund Manager shall offer at least four allocation schemes for a Participant to choose from, based on the laid down criteria.

Given the laid down criteria, a Participant will choose the percentage of contribution) that goes into each sub-fund for individual allocation schemes. The participant may choose to freeze his portfolio allocation and percentages at a point in time and the allocation and percentages may be changed for future contributions.

The participant may choose to freeze his portfolio allocation and percentages at a point in time and the allocation and percentages may be changed for future contributions. Such change will be allowed twice till retirement. If a Pension Fund Manager wants to provide additional allocation schemes or products (e.g. Lifecycle products), it may do so subject to the approval of the Commission. Up to two additional schemes/products may be approved in the first five years.

A Participant shall have the option to select any one of the allocation scheme/products offered by the Pension Fund Manager. In the event no choice is made by the Participant, a PFM, keeping in view the profile and age of the Participant, shall allocate the contributions preferably to an approved Lifecycle Allocation Scheme specified, and if such a scheme has not been offered, then allocate contributions to either Low Volatility (formerly Conservative Allocation Scheme) or Lower Volatility (formerly Very Conservative Allocation Scheme).

A Pension Fund Manager shall get an undertaking from every Participant that he/she has no objection to the investment and allocation policy determined by the Commission and he or she is fully aware of the risks associated with the investment policy and the allocation policy chosen by him or her.

The Pension Fund Manager shall make reallocation of the units between the sub-funds at least once a year to ensure that the allocation of units of all the Participants are according to the percentages selected by the Participants or where no selection has been made according to the prescribed allocation policy, SECP added.

A participant will choose the percentage of contribution) that goes into each sub-fund for individual allocation schemes, SECP added.

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