Scribd
Upload
5 views

Lecture 5 FIM

The document discusses pension funds, which are investment pools that provide regular payments to individuals during retirement, funded by contributions from employees and employers. It outlines the types of pensions, including public and private pensions, and details specific pension schemes in Pakistan such as EOBI and the Voluntary Pension System. Additionally, it highlights the benefits of pension funds and the challenges they face, including funding shortfalls and investment risks.

Uploaded by

shagufta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
5 views

Lecture 5 FIM

The document discusses pension funds, which are investment pools that provide regular payments to individuals during retirement, funded by contributions from employees and employers. It outlines the types of pensions, including public and private pensions, and details specific pension schemes in Pakistan such as EOBI and the Voluntary Pension System. Additionally, it highlights the benefits of pension funds and the challenges they face, including funding shortfalls and investment risks.

Uploaded by

shagufta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 14

Financial Markets and

9th Edition Institutions


by Jeff Madura

Course Instructor:
Shagufta Saleem Shaikh
Lecture 5

PENSION FUNDS
What is Pension
A pension is a regular payment made to a person
during their retirement from an investment fund to
which that person or their employer has contributed
during their working life. The goal of a pension is to
provide financial security after a person has retired
and is no longer earning an income from
employment.

• Pension is an Amount which is receivable


After retirement of particular employee
Types of Pension

There are two common types of pensions:

1. Public Pensions:
These are provided by the government and funded through taxes, such as
Social Security in the U.S. or similar programs in other countries.

2. Private Pensions:
These are provided by employers or private pension plans and are funded by
contributions made by both the employee and the employer over the course
of the employee's career.
WHAT IS EOBI?

• EOBI ( Employee old-age benefit institution) An


institution where you contribute during your service and
later on they provide you with pension .

• Formed in 1976.

• Core Activity : Collects contribution and provide pension


after retirement.
TYPES OF PENSION FUNDS

• Commuted
Pension you receive every month after retirement

• Uncommuted
Lump-sum Amount ( Collective amount)
Pension Funds

Pension funds are investment pools


that collect and manage retirement
savings contributions made by
individuals, employers, or both. These
funds are designed to provide retirees
with income after they stop working.
Pension funds invest the collected
money in a variety of assets, including
stocks, bonds, real estate, and other
securities, to generate returns over
time.
Types Of Pension Plans

There are two main types of pension plans:

• 1. Defined Benefit Plan:


The retiree receives a guaranteed payout, often based on factors
such as years of service and salary history.

• 2. Defined Contribution Plan:


Contributions are fixed, but the benefits depend on the investment
returns from the fund.
In Pakistan the contribution to pension funds

In Pakistan, the percentage of contributions to pension and retirement funds varies


depending on the type of fund or scheme, as there is no uniform rate across all plans.

Here are some key examples:

1. Old-Age Benefits Institution (EOBI)


The Employees' Old-Age Benefits Institution (EOBI) provides pensions to workers in the
private sector. Employers contribute to this fund on behalf of their employees. Upon
retirement, disability, or death, workers or their families receive monthly pension
payments.

Contribution Rate:
Employers contribute 5% of the minimum wage, while employees contribute 1% of
their wages. EOBI is a government-managed pension scheme for private-sector
2. Employer-Based Pension Schemes
Some private sector companies, particularly larger firms or multinationals,
offer pension plans to their employees. These are typically Defined
Contribution Plans where both the employee and employer contribute to the
fund. The retirement benefits depend on the performance of the investments
made by the pension fund.

Contribution Rate
Contributions to private pension schemes or individual pension accounts also
vary. Individuals may contribute as much as they desire, but contributions up
to a certain limit (e.g., 20% of annual income) may qualify for tax benefits.
3. Voluntary Pension System (VPS)
• In 2005, Pakistan introduced the Voluntary Pension System (VPS),
regulated by the Securities and Exchange Commission of Pakistan (SECP).
VPS allows individuals, whether employed or self-employed, to
contribute towards their retirement savings in a tax-advantaged manner.

Contribution Rate:
• The contribution rate for provident funds is usually around 10-12% of
the basic salary, with both employers and employees contributing
equally.
BENEFITS OF PENSION FUNDS

- Retirement income security

- Professional management

- Economies of scale

- Tax benefits (varies by country and plan type)

- Employer matching contributions (for employer-sponsored plans)


CHALLENGES FACING PENSION
FUNDS
1. Funding Shortfalls: Insufficient assets to cover liabilities.

2. Investment Risk: Market fluctuations affecting returns.

3. Longevity Risk: Increasing life expectancy straining fund resources.

4. Regulatory Changes: Evolving laws and regulations impacting fund management.

5. Demographic Shifts: Aging population increasing dependency ratio.


Thanks..

You might also like