Smart Tax Savings through Voluntary Pension Schemes Alhuda-CIBE Trainings Avari Towers, Karachi

1. Smart Tax Savings through Voluntary Pension SchemesAlhuda-CIBE TrainingsAvari Towers, Karachi April 25, 2012

2. Outline • The Need for Retirement Planning • Voluntary Pension Schemes • How VPS Works • Comparison between VPS & Provident Fund

3. I. The Need for Retirement Planning

4. The Need for Retirement Planning • Retirement” is a phase of life where one’s source of income ceases. While your INCOME stops, your EXPENSES don’t ! • A Pension is an income that one will NEED at retirement • While we may be compelled to think of “Retirement” as a tedious phase of our life – it is in fact a stage marked by: • Limited Income • Dependency on children • Sacrifices & hardships • Difficulty in meeting expenses • No enjoyment • Therefore, we must ‘Plan’ today for a healthy, happy • retirement tomorrow

5. Global Pension Statistics

6. Pension Alternatives in Pakistan To date, private citizens of Pakistan have not had access to a pension plan, which would enable them to plan for their retirement in a methodical manner. • Private citizens primarily depend on: • Yield on property • Interest on bank deposits/NSS • Or alternatively depend on their children for retirement support • Provident funds cater to similar needs but provide: • Very low returns • Lack transparency • Lack of premature accessibility (in most cases)

7. II. Voluntary Pension Schemes

8. What are Voluntary Pension Schemes (VPS)? • A very flexible savings cum investment plan • Facilitates individuals to save systematically for their retirement • Savings topped with investment returns • Desired investment exposure to high yielding assets • Special tax benefits • After reaching retirement age, get monthly income from your accumulated investments or withdraw a lump sum amount

9. Meezan Tahaffuz Pension Fund Benefits • A long term saving mechanism with flexibility of varying exposure to different asset classes • As per Section 63 of the Income Tax ordinance 2001, Tax saving available on contributions up to 20% of the taxable income • For an investor aged 41 or above, the contribution limit will progressively increase by 2% every year, up to 50% of taxable income • Tax free returns on investment • Portability • Additional feature: Free of cost Takaful protection for Natural Death, Accidental Death, Permanent Total Disability and Accidental Medical Expenses • Fund Type: Open End Islamic Pension Fund • The objective of MTPF is to provide participants a Shariah compliant saving mechanism where individuals save during their work life so as to retain financial security and comfort in terms of regular income stream after retirement • Fund Size as of Mar 31, 2012: PKR 600 Mn. • Sales Load: 3% • Launch Date: June 2007

10. Key Features of MTPF • The Largest VPS in the market with the size of over Rs. 650 mn • Shariah compliant as per the guidelines of Shariah Supervisory Board • Flexibility of choosing asset allocation scheme of choice, which can be changed once a year on the anniversary of the account • Periodic rebalancing by Al Meezan Investments will ensure that your asset allocation remains within your desired limit • Participants of MTPF on attaining the age of retirement shall have the following options: • Withdraw up to 50% of amount(tax free) in their pension account; • The remaining amount shall be used to either purchase an annuity from a life insurance/takaful company or invest the amount in any approved Income Payment Plan to receive a monthly amount till the age of 75 years. • Participants can choose retirement age between 60-70 • Participants can withdraw before retirement also. However, tax rate for last three consecutive years would apply on the redemption amount.

11. E E T Structure • MTPF based on E E T Structure • E: Exempt : Tax Rebate on annual contributions • E: Exempt : Tax Exemption on Profits earned in MTPF. All earnings of the Scheme are Tax Free • T: Taxable : Upon retirement, you can withdraw 50% of accumulated amount tax free .

12. Structure of VPS Tax free redemption 50% Al Meezan Investments Income Payment Plan till age 75 At Retirement (on/after 60) After 75 Meezan Tahaffuz Pension Fund OR 50% Sales Load upto 3% Annuity from Life Takaful Co Equity Sub Fund Before Retirement All withdrawals taxed At last 3 yrs tax rate Contribution Debt Sub Fund Allocation Policy Disability Before Retirement Deemed retirement M.M Sub Fund Cash withdrawal – 50% tax free (deemed retirement) Death Before Retirement Transfer amount to survivor’s VPS account Survivors as per nomination deed Purchase deferred annuity starting at 55

13. Tax benefits • As per Section 63 of the Income Tax ordinance 2001, Tax saving available on contributions up to 20% of the taxable income • For an investor aged 41 or above, the contribution limit will progressively increase by 2% every year, up to 50% of taxable income • Contribution to MTPF effectively increases return on investment by the % of tax rate. • Latest amendments in tax laws have clarified provision of direct adjustment of these credits at the time of disbursement of salary

14. Illustration of tax benefit & effective returns *Illustration based on 15.45% annualized return on High Volatility Plan *2% additional tax benefit after age of 40 till the total taxable income shall not exceed 50% of the preceding year.

15. Asset Allocation Schemes • Al Meezan Investments is offering 4 pre-set asset allocation schemes as following: • Participants can also select Meezan Life Cycle Plan as a suitable Allocation Scheme. • You may choose one of these Allocation Schemes with the above mentioned broad allocation percentages.

16. Meezan Life Cycle Plan • Under this allocation scheme, contributions will be allocated according to a planned asset allocation as per their age. • Since at different ages, investors’ risk appetite varies, the plan seeks to modify their risk exposure as they grow older by progressively changing their asset allocation. • The younger the participant the higher the allocation towards equity market due to his high risk taking ability with reference to long term horizon. • The allocation among different sub funds of MTPF shall be done on the basis of the age of the Participant as per the following allocation table:

17. Expected Returns on Allocation Schemes • Returns* on Sub-Funds since Inception till February, 2012 • Equity Sub-Fund 49.9% • Debt Sub-Fund (annualized) 9.40% • Money Market Sub-Fund (annualized) 9.60% • * Does not incorporate Tax Benefit • Expected net returns on Allocation Schemes • High Volatility (80% equity,20% debt,0% money market) 18.2% • Medium Volatility(50% equity, 40% debt ,10% money market) 15.45% • Low Volatility (25% equity ,60% debt ,15% money market) 13.18% • Lower Volatility (0% equity,60% debt ,40% money market) 10.80%

18. Takaful Protection • Takaful protection from Pak Qatar Takaful being offered to all participants with participation contribution of PKR 100,000 • Coverage for Natural Death, Accidental Death, Permanent Total Disability (PTD) and Accidental Medical Expenses • No hidden charges, all costs for Takaful protection borne by Al Meezan

19. Meezan Income Payment Plan • The plan offers various payment options to the Participants of MTPF, who wish to receive periodic income from their amount after retirement. • Systematic Withdrawal Option • The Participant may instruct to pay a fixed amount at the end of each Period . The minimum amount is Rs. 500. • Actual Appreciation Payment plus Fixed Amount • The Participant may instruct to pay an amount based upon actual appreciation at the end of the Period plus a fixed amount (i.e., at least Rs. 500). If investment depreciates during the Period, only fixed amount shall be paid.

20. Performance – Starting Early Age 25 years Monthly IncomeRs. 25,000 Retirement Planning Target Retirement Age60 years Years Investing35 years Monthly ContributionRs. 1,000 p.m - The rate of return has not incorporated additional return earned /realized due to VPS tax savings. The case study presented above is just for illustrative purposes & is not intended to reflect actual return on investments

21. Performance – Starting at Middle Age Age45 years Monthly IncomeRs. 250,000 Retirement Planning Target Retirement Age60 years Years Investing15 years Monthly ContributionRs. 20,000 p.m - The rate of return has not incorporated additional return earned /realized due to VPS tax saving's The case study presented above is just for illustrative purposes & is not intended to reflect actual return on investments

22. Comparison between VPS and Provident Funds

23. Contact Details • UAN: +92-21-111-MEEZAN (633-926) • Toll-free Helpline 0800-42525 • SMS INVEST to “6655” • Karachi – Registered Office: (92-21) 35630722-26 • Sales Hub Karachi: (92-21) 34536602-05 • Lahore Office: (92-42) 35783608-12 • Faisalabad Office: (92-41) 2412371-4