# Pension funds (VPS) in Pakistan: tax credit and returns

URL: https://which.pk/money/guides/pension-fund-pakistan/
Author: Ahtisham Imtiaz
Updated: 13 Oct 2026

## Summary

A Voluntary Pension Scheme (VPS) gives salaried and business individuals a tax credit at their average tax rate on contributions up to 20% of taxable income. At Rs 3,000,000 of taxable salary in tax year 2027, that is about Rs 55,200. VPS funds held Rs 156 billion in August 2026. Over the year to August, conventional equity sub-funds returned 14.38% to 27.44%. Up to 50% is tax-free at retirement; earlier withdrawals are taxed at your three-year average rate.

## Key facts

- Tax credit limit: 20% of taxable income
- Tax-free at retirement: Up to 50%
- VPS assets: Rs 156 billion (Aug 2026)
- Retirement age (Meezan): 60 to 70

A pension fund in Pakistan is a **Voluntary Pension Scheme (VPS)**: a retirement account run by a pension fund manager registered with SECP (Securities and Exchange Commission of Pakistan). If you earn a salary or business income, contributions get a **tax credit on up to 20% of your taxable income**, at your average tax rate. At retirement, between age 60 and 70, **up to 50% comes out tax-free**. VPS funds held **Rs 156 billion** in August 2026, per MUFAP (Mutual Funds Association of Pakistan).

**Tax credit at Rs 3,000,000 taxable salary (tax year 2027):** Rs 55,200 a year (On a Rs 600,000 contribution, 20% of income. Our calculation from the Income Tax Ordinance, as amended up to 30 June 2026.)

## How does a voluntary pension scheme work in Pakistan?

You open an individual pension account with one pension fund manager, usually an asset management company. Each fund has **sub-funds**: equity (shares), debt, money market and, at some managers, gold. You pick an allocation that mixes them. HBL's fund, for example, offers four risk levels from "high volatility" to "lower volatility".

- **Who can join:** an individual Pakistani with a valid NTN (National Tax Number), CNIC or NICOP, under the Income Tax Ordinance. Since SECP's February 2024 rule changes, holders of a Pakistan Origin Card over 18 can join too.
- **Minimum:** Rs 1,000 to open at Meezan Tahaffuz Pension Fund; Rs 500 at HBL Pension Fund.
- **The fund pays no tax** on its own income: approved VPS funds are on the Ordinance's exempt list.
- **Market size:** as of March 2024, SECP counted 14 registered pension fund managers. Meezan, UBL, NBP, MCB and Atlas managed around 80% of assets.

## How much tax rebate do I get on a pension fund?

Section 63 of the Income Tax Ordinance gives the credit. It works out as:

**credit = (your tax ÷ your taxable income) × the smaller of your contribution or 20% of taxable income**

So the credit is your **average** tax rate, not your top rate, applied to what you put in. If you contribute the full 20%, the credit equals 20% of your tax bill. Here is what that means on the tax year 2027 salaried rates (Finance Act 2026):

| Taxable salary a year | Tax before credit | Average rate | Most that counts (20%) | Tax credit |
|---|---|---|---|---|
| Rs 1,200,000 | Rs 6,000 | 0.5% | Rs 240,000 | Rs 1,200 |
| Rs 3,000,000 | Rs 276,000 | 9.2% | Rs 600,000 | Rs 55,200 |
| Rs 7,000,000 | Rs 1,424,000 | 20.3% | Rs 1,400,000 | Rs 284,800 |

These are our calculations from the Ordinance's salaried tax table. The credit is small at lower salaries because the average rate is low. To find your own tax, see the [income tax slabs for 2026-27](/business/guides/income-tax-slabs-2026-27/) or the [salary tax calculator](/business/tools/salary-tax-calculator/).

Three conditions from the law:

- The credit is only for income taxed as **salary** or **business**.
- Moving a balance from an existing approved employer pension, annuity or savings scheme into a VPS **does not** earn a credit.
- The old Rs 500,000 cap was removed in 2011. The extra allowance for people who joined at 41 or older ended on 30 June 2019.

### How do I claim the pension fund tax credit?

1. **Open an account** with a pension fund manager and choose your allocation.
2. **Contribute before 30 June**, when Pakistan's tax year ends. MCB Funds advertises this deadline.
3. **Salaried:** give the fund's statement to your HR or payroll team and ask them to cut your monthly tax deduction, as MCB Funds describes.
4. **Self-employed:** claim the credit in your return and attach the statement. See [how to file your income tax return](/business/guides/how-to-file-income-tax-return/).

MCB Funds also says you must hold the investment for at least a year to claim. We couldn't find that condition in section 63 itself, so ask your fund manager before relying on it.

## What returns have pension funds given?

MUFAP's ranking for the **365 days to 31 August 2026** shows a wide spread between managers:

| Sub-fund | Conventional funds | Shariah-compliant funds |
|---|---|---|
| Money market (a year) | 9.76% to 10.72% (10 funds) | 8.28% to 11.17% (15 funds) |
| Debt (a year) | 8.17% to 11.54% (10 funds) | 6.58% to 11.56% (15 funds) |
| Equity (for the 365 days) | 14.38% to 27.44% (10 funds) | 3.99% to 24.15% (15 funds) |
| Gold / commodities | 22.44% and 24.93% (2 funds) | 24.27% (1 fund) |

For **August 2026 alone**, MUFAP's category averages were 10.24% a year for conventional money market sub-funds and 10.14% for Shariah ones. Equity sub-funds returned 1.10% and 1.80% for the month. MUFAP's returns are after fund expenses but **before any front-end load**, and past returns don't predict future ones.

**Why we don't name the 'best pension fund':** The top equity sub-fund over the year to August 2026 returned 27.44%; the lowest conventional one returned 14.38%, and the lowest Shariah one 3.99%. MUFAP warns that past performance doesn't predict future results. Choose by allocation, fees and the manager's service, not last year's winner.

## Is there an Islamic pension fund in Pakistan?

Yes. MUFAP's August 2026 ranking lists **15 Shariah-compliant pension funds**. Meezan Tahaffuz Pension Fund, launched in 2007, has equity, debt, money market and gold sub-funds. Its equity sub-fund returned 13.34% and its money market sub-fund 10.13% a year over the 365 days to 31 August 2026. For the wider halal fund market, see [mutual funds in Pakistan](/money/guides/mutual-funds-pakistan/).

## What fees do pension funds charge?

Since **1 July 2025**, SECP caps the yearly management fee, charged on the fund's average daily net assets, as reported by Business Recorder:

| Pension sub-fund | Fee cap a year |
|---|---|
| Equity | 2.50% |
| Commodity | 1.50% |
| Debt | 1.25% |
| Money market | 1.00% |
| Equity index | 0.75% |

On top of that, a **front-end load** can be charged when you contribute. Meezan's key fact statement lists 3% and HBL's says up to 3%. On a Rs 600,000 contribution, a 3% load is Rs 18,000, about a third of the Rs 55,200 credit in the example above. Ask whether the load is waived before you pay. SECP's 2024 changes stopped funds from charging selling and marketing expenses to pension participants.

## Can I withdraw from a pension fund before retirement?

Yes. You can redeem all or part of your units on any dealing day. The catch is tax: the pension fund manager deducts tax at your **average rate over the last three tax years**, and Meezan asks for those three years' returns. This early-withdrawal tax doesn't apply if you withdraw because of a **disability** that leaves you unable to work, or when your **nominated survivors** withdraw after your death.

## What happens when I retire?

Meezan's key fact statement gives a retirement age of **60 to 70**; HBL's says 60 or 70, with details in its offering document.

If you take more than 50% as cash, the extra is taxed at your three-year average rate. SECP's 2024 rules also require pension fund managers to offer life annuities to retirees.

## Is a pension fund right for me?

A VPS suits you if you pay income tax on a salary or business and won't need the money until 60. The credit grows with your tax rate. At Rs 1,200,000 of salary it is at most Rs 1,200 a year, so a [savings account](/money/guides/savings-account-profit-rates/) or [National Savings](/money/guides/national-savings-certificates/) may be simpler. On filing and the Active Taxpayer List, see [filer vs non-filer](/business/guides/filer-vs-non-filer/).

Since SECP's February 2024 rule changes, employers can run pension funds for staff too. In June 2025 SECP proposed letting one fund serve several employers, so smaller firms could offer one. We couldn't confirm whether that change has been made.

More guides: [investment options in Pakistan](/money/guides/investment-options-pakistan/), [life insurance](/money/guides/life-insurance-pakistan/), [sukuk in Pakistan](/money/guides/sukuk-pakistan/), [how to invest in PSX](/money/guides/how-to-invest-in-psx/).

## Questions people ask

### How much tax rebate do I get on a pension fund?

Your average tax rate times what you contribute, on contributions up to 20% of taxable income (section 63). At Rs 3,000,000 of taxable salary in tax year 2027, a Rs 600,000 contribution earns a credit of about Rs 55,200.

### Can I withdraw from a pension fund before retirement?

Yes, on any dealing day, but the pension fund manager deducts tax at your average rate for the last three tax years. Disability and death are the exceptions.

### Which is the best pension fund in Pakistan?

It depends on the sub-fund. Over the year to 31 August 2026, conventional equity sub-funds returned 14.38% to 27.44% and money market sub-funds 9.76% to 10.72%, per MUFAP. Past returns don't predict future ones.

### Is there an Islamic pension fund in Pakistan?

Yes. MUFAP's August 2026 ranking lists 15 Shariah-compliant pension funds, including Meezan Tahaffuz Pension Fund.

## Sources

- [Income Tax Ordinance, 2001 (amended up to 30 June 2026)](https://download1.fbr.gov.pk/Docs/2026724177725705IncomeTaxOrdinanace2001.pdf), FBR (accessed 13 Oct 2026)
- [SECP organizes workshop on new regulatory framework of Voluntary Pension Schemes (4 March 2024)](https://www.secp.gov.pk/wp-content/uploads/2024/03/Press-Release-March-4-SECP-organizes-workshop-on-new-regulatory-framework-of-Voluntary-Pension-Schemes.pdf), SECP (accessed 13 Oct 2026)
- [SECP invites public comments on proposed amendments to VPS Rules, 2005 (13 June 2025)](https://www.secp.gov.pk/wp-content/uploads/2025/06/Press-Release-SECP-Invites-Public-Comments-on-Proposed-Amendments-to-VPS-Rules-2005.pdf), SECP (accessed 13 Oct 2026)
- [MUFAP E-Newsletter, August 2026](https://mufap.com.pk/Upload/WebDoc/Communication/MUFAP_Newsletter_-_Aug_202625480.pdf), MUFAP (accessed 13 Oct 2026)
- [Ranking of CIS on the basis of their last 365 days returns, August 2026](https://www.mufap.com.pk/Upload/WebDoc/IndustryStatictics/Ranking_of_CIS_-_Aug_202625473.pdf), MUFAP (accessed 13 Oct 2026)
- [Key Fact Statement: Meezan Tahaffuz Pension Fund](https://www.almeezangroup.com/assets/uploads/2026/07/Key-Fact-Statement-MTPF.pdf), Al Meezan Investment Management (accessed 13 Oct 2026)
- [Key Fact Statement: HBL Pension Fund](https://hblasset.com/wp-content/uploads/2025/12/Form-Key-Fact-Statement-HBL-Pension-Fund.pdf), HBL Asset Management (accessed 13 Oct 2026)
- [Tax Bachao](https://www.mcbfunds.com/tax-bachao/), MCB Investment Management (accessed 13 Oct 2026)
- [AMCs, PFMs: SECP replaces TER capping regime with caps on management fees wef July 1](https://www.brecorder.com/news/40357852/amcs-pfms-secp-replaces-ter-capping-regime-with-caps-on-management-fees-wef-july-1), Business Recorder (accessed 13 Oct 2026)