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  • Oct 3rd, 2017
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The Securities and Exchange Commission of Pakistan (SECP) has proposed ''Awami Pension Scheme'' for all citizens living in informal sector to contribute up to Rs 20,000 per year by every individual to qualify for the government contribution of 10 percent towards his or her retirement plan.

Sources told Business Recorder here on Monday that the proposal may be placed before the 5th Meeting of National Financial Inclusion Strategy (NFIS) Steering Committee to be held at the State Bank of Pakistan (SBP) Karachi on Tuesday (today).

Based on recommendations of the Technical Committee on Pension, seven proposals on pension were discussed in previous NFIS Steering Committee meeting. After reviewing proposals on pension, it was decided that Financial Inclusion proposals relating to the pension would be brought through the NFIS governance structure. Whereas, rest of the recommendations need to take on board the concerned government departments/ forums. Accordingly, the SECP has forwarded following two proposals on pension to be discussed in the 5th NFIS steering Committee meeting.

Awami Pension Scheme: People working in the informal sector presently have minimal knowledge and incentive to save towards their retirement. These people are hardly part of the financial system of the country. By providing some incentive, the government can encourage a vast population of the country to become part of the formal financial system. The scheme proposed by the Technical Committee on Pension (TC) in this regard will help in improving the abysmal savings and investment rate in the country as well as provide financial security to the aging population not covered under any existing pension system.

One of the key features of the proposed system is that all Pakistani citizens, aged between 18-60 years, will be eligible to participate in the proposed scheme.

Secondly, the participant can contribute up to Rs 20,000 per year initially, to qualify for the government contribution of 10% towards his or her retirement plan. Thirdly, in the first year government may allocate up to Rs 2 billion for the proposed scheme in order to provide 10% contribution towards participants pension account on first come first serve basis.

Fourthly, the proposed scheme shall be managed under the Voluntary Pension System Rules 2005 and the participants will open their pension accounts with any of the registered Pension Fund Managers (PFMs). An individual who is already covered under any retirement scheme will not be eligible to benefit from this scheme.

Fifthly, the PFM shall provide free of cost insurance coverage equal to investment balance in case of unfortunate early retirement due to permanent total disablement or unfortunate event of the death of a participant. Sixthly, the PFMs will be responsible for acting as points for collection and disbursement of funds as well as management of the assets as per investment guidelines of the scheme.

Seventhly, pension amount will be credited directly into participant bank account. Eighthly, the monthly pension will start on reaching the retirement age selected by the participant. Ninthly, withdrawal of the government contribution and profit thereon not permitted before retirement.

Tenthly, Ministry of Finance will disburse the approved amount to SBP/NBP at the end of 12 months from the first date of investment. Eleventh, trustee will provide the details of participants to the entity authorized by the government for disbursement of 10% contribution. Twelfth, the PFM will actively market the scheme amongst general public.

Based on assumptions, the total investment by the government of Pakistan in the first five years will be Rs 30 billion, which will have a multiplier effect on the savings and investment of Rs 415 billion. Through this system, the government can develop significant pool of long-term savings which in turn can lead to more stable long-term credit being available both for government and private sectors. The government can possibly involve international donor agency to partially fund the retirement plan. The plan will help in documentation of the economy.

The SECP''s another proposal on digitization of pension payments revealed that the pension payments have been largely made using over the counter methods, which introduce significant audit and verification problems. In addition, this has often required beneficiaries to travel long distances and wait in slow moving long queues, at times exposed to poor weather conditions. With the expected increase in access to digital transactions and the linkage to biometric information, regular benefit disbursements can be made virtually at the doorstep of beneficiaries and at the same time allow 100 percent audit and verification of each payment. The beneficiary group that can benefit from this immediately being federal and provincial government pensioners since they are the largest group that is mostly paid using OTC methods and where audit and verification is most lacking.

In order to achieve the objective of financial inclusion, steps shall be taken including use of digital/branchless banking (BB) channels for monthly disbursement of pensions and use of centralized database for assessment of real time liabilities.

Other objectives included using off the shelve disbursement solutions like Accounts Card Base disbursement, Mobile Base disbursement and Biometric Base disbursement and use of Pakistan Post infrastructure of over 13,00 postal outlets which are currently offering over 55 services with a resource base of around 45,000 employees, the SECP proposal added.

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