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

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).

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):

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 or the 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?

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:

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.

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.

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:

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 or National Savings may be simpler. On filing and the Active Taxpayer List, see 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, life insurance, sukuk in Pakistan, how to invest in PSX.