PROPOSAL FOR MTPF from Al Mezaan Bank

                                PROPOSAL FOR MTPF, Provident Fund & Gratuity Fund

Dear Sir,

اسلام ورحمۃ اللہ وبرکاتہ

Subject:           Approved Pension Fund (Meezan Tahaffuz Pension Fund) as an alternate to Occupational Saving Schemes

Refer our meeting for discussion on the option of contribution into an Approved Pension Fund and its advantages over Provident Fund.

Approved Pension Funds are a new alternative to Occupational Saving Schemes (OSS). Until 2007, Companies having 50 or more employees were required to pay either one of Gratuity or Provident Fund to an employee at the time of cessation of his employment. Through the Finance Act 2007 an amendment was made in Standing Order number 12 of The Industrial and Commercial Employment (Standing Orders) Ordinance, 1968 whereby Approved Pension Fund was added as an alternative to OSS. Employers can now choose to offer any one or more of these schemes to their employees to satisfy the mandatory Gratuity condition.

The contribution in an approved pension Fund is similar to a Provident Fund as it is also a defined contribution plan i.e.

-          The contribution is subject to maximum limit as defined in the Income Tax Ordinance, 2001;

-          The employer has to contribute 50% of that limit and employee may contribute 50% or less;

-          This scheme could be opted by an employee or offered by an employer by taking individual consent or through collective bargaining with person acting on behalf of employees. 

Approved pension Funds are governed by Voluntary Pension System Rules, 2005 (VPS rules). Meezan Tahaffuz Pension Fund (MTPF) was among the four early Approved Pension Funds with its launch in 2007. It rose up to the position of market leader immediately after its incorporation. Al Hamdolillah It stayed as a market leader throughout the time since its incorporation and still maintains its leading position. At present more than 3,400 participants are contributing directly or indirectly in this fund making a total of over Rs 5 billion in pension assets.

We also take pride in managing pension of more than 1,000 corporate employees working in organizations who have chosen this scheme over provident fund.

This relatively new option of contributing to an approved pension fund has its own advantages over the other two schemes with the few prominent ones elaborated in the following paragraphs.

A member of Provident Fund may provide either one or both of the following authorizations to his employer for contribution to an Approved Pension Fund Under Income Tax Rules 2002, under Rule 103 sub rule (1)(aa):

-          Regular contributions:  Income tax rules 2002, rule 105 sub rule (6) and according to Voluntary pension system rule 2J 2005 authorize employer to pay all future contributions to an Approved Pension Fund to be invested in individual pension account of an employee;

-          Transfer of Accumulated balance: Authorize employer to transfer accumulated balance of employer and employee contribution along with profit thereon to Approved pension Fund. This is allowed as a permitted withdrawal under sub rule (1)(aa) of rule 103 of Income Tax Rules, 2002. Further, rule 106 (1) of Income Tax rules, 2002 allows it as a permanent withdrawal.

Tax Treatment – Transfer of balances;

The amount of accumulated balance representing employer and employee contribution and profits thereon transferred from his provident Fund account to Pension Account is free from taxes throughout. This amount does not necessarily has to be held till retirement and could be withdrawn Tax Free under clause 23C of Part I of Second Schedule to the Income Tax Ordinance, 2001. Since this amount earns a tax free return over the entire investment period it is more beneficial for an employee to continue his investment till retirement and earn tax free returns over the period.

At the time of retirement the employee could either withdraw this amount or transfer it to Income Payment Plan under our management to earn regular monthly payments along with tax free profits for over 10 years under clause 23B of the Second Schedule of Part 1 of the Ordinance.

  

Ceiling on credit of profit to employees account;

The amount of profit that could be credited in the account of a member of provident fund is subject to limits under rule 3 of the Income Tax Rules, 2002, exceeding which the amount will be added to the taxable income of an employee. In case of Approved Pension Fund there is no such limit. In the past the participants have earned a return which has gone over 50% in FY 2013 and the entire amount is credited to employees account without adding it to taxable income of an employee.

Additional Contribution;

A Participant could make additional contribution to his pension fund account and save up to 20% of total taxes (for participants under 40 years of age) and up to 50% (for participants over 40 years of age, valid up to June 30, 2016). These additional contributions are subject to same tax treatment as applicable to regular contributions. Our representative will guide each employee on the maximum amount that could be contributed to utilize complete tax benefit.

Takaful Benefits;

Al Meezan has also made arrangement with a leading Takaful provider to provide a life Takaful coverage of up to 50% of the value of investment. You can benefit from Free of cost Takaful cover up to Rs. 5 million against:

·         Natural Death	·         Permanent Total Disability
·         Accidental Death	·         Accidental Medical Expenses

Details are mentioned in annexure 3.

Professional Fund Management

The Participants invested in this Fund have earned consistent returns each year over the period of last 9 years. These returns are based on the plans chosen either by an investor or their employer. A summary of returns earned by participants over the period are mentioned in Annexure 4.

Value added services;

Participants can view their investments and performance thereon by logging into member services area at our website www.almeezangroup.com. The investments valuation is updated daily so a Participant do not need to wait for credit of profit for a period end as is the case with Provident Fund.

Employer’s right over contribution;

VPS rules allow an employee to withdraw the amount to his credit.

The employer may place a condition in the consent letter that the employee will need to take consent from his employer before withdrawal from the amount of contribution in a consent letter to be signed by individual employees and to be maintained by employer.

Separate accounts of Individual Participants;

Separate accounts will be maintained for each employee to segregate contributions and profit thereon earned on contributions made by the employer and that made on behalf of an employee and those earned on transfer of accumulated balance.

All future employee and employer contributions will be made through a single cheque with details of employees on whose behalf these are to be invested.

Transaction Cost Waiver;

Under Clause 2 of Directive 4 dated September 30, 2015 issued by SECP, no Front End Load is chargeable on Contributions in Participant’s account made by Employers. This is a significant saving of over 3% of investment amount as otherwise contribution in VPS is subject to Front End load deduction.

We are of the view that this product has many comparative advantages over the other two schemes. Realizing these advantages, Al Meezan has itself opted for contributions in Meezan Tahaffuz Pension Fund for and on behalf of its employees over Provident Fund. We look forward for approval from the Trustees for proceeding further and will really appreciate your acceptance of this proposal by signing below.

Annexure 3

Returns on Investment in different plans of Meezan Tahaffuz Pension Fund.

Allocation Schemes	YTD	1Yr	3Yr	5Yr	PSD*	CAGR*
High Volatility	17%	17%	67%	223%	417%	18%
Med. Volatility	13%	13%	48%	152%	303%	15%
Low Volatility	9%	9%	32%	94%	209%	12%
Lower Volatility	5%	5%	16%	35%	113%	8%

*Performance starts date of June 28, 2007. CAGR since inception

Annexure 4

Operational Mechanics of Meezan Tahaffuz Pension Fund

Meezan Tahaffuz Pension Fund is based on three sub Funds:

1.       Equity Sub Fund;

2.       Money Market Sub Fund;

3.       Debt Sub Fund.

The Voluntary Pension System Rules, 2005 regulate the investments that could be made by the Fund Manager on behalf of each of these Sub Funds. The assets and Liabilities of each of these sub Funds are kept separately with their individual Bank Accounts. Accordingly Net Asset Value per Unit is announced for each sub Fund. 

Participants or their employers have the choice to divide investments in the sub funds ranging for 0% allocation to Equity Sub Fund to 100% allocation to this Sub Fund. The remaining amount is accordingly invested in Money Market or Debt Sub Fund which are low risk Funds. These allocation schemes are as follows:

Allocation Scheme	Equity Sub Fund	Debt Sub Fund	Money Market Sub Fund
High volatility	80%	20%	-
Medium Volatility	50%	40%	10%
Low Volatility	25%	60%	15%
Lower Volatility	-	50%	50%
Volatility allocation Schemed	100%	100%	100%

The portfolio of each participant is re-balanced to these percentages at the discretion of Fund Manager.

At the time of investment, the amount is split between these sub fund and units of relevant sub fund are issued to a participant. These units are revalued on daily basis on the net asset value of that relevant sub fund.

Best Regards

Bia Shahid

Investment Advisor

Al Meezan Investment Management Limited

Office#1 Ground Floor, Leeds Center, Gulberg III, Main Boulevard, Lahore.

Direct ( : (+ 92-42) 32560530

Mobile: (+ 92 ) 3094059230

Email * : bia.shahid@almeezangroup.com