Dec 13 - 19, 2004





The Securities and Exchange Commission of Pakistan (SECP), during the last week, took two major initiatives to promote and improve corporate governance and introduce new voluntary pension system in the country. The two measures announced will go a long way in creating awareness of good corporate governance and expanding capital market activities. The proposed voluntary Pension Rules 2004 allow private sector companies to set up pension funds and insurance companies to issue annuity plans.

Talking to a group of senior journalists in his office, SECP Chairman Dr. Tariq Hasan announced registration of a Pakistan Institute of Corporate Governance as a non-profit making organization, which would act as a think tank for promoting good corporate governance. He termed it as major initiatives taken with the cooperation of State Bank of Pakistan and other corporate entities/stakeholders after several months of efforts. The 19 founding members of the institute included, apart from the SECP and SBP, three stock exchanges, professional bodies of bankers and chartered accountants, academia and other professionals. The institute will have its headquarters in Karachi, with office in Lahore and Islamabad.

According to Dr. Tariq Hasan, the commission has contributed Rs. 20 million towards the institute, while other founding members have given Rs. 500,000 each. More funds expected through domestic and foreign donations. Research and training of professionals for corporate sectors will be an important part of its operations. The SECP Chief said that though governments play a central role in shaping the legal, institutional and regulatory climate within which individual corporate governance systems are developed, major responsibility still lies with the corporate sector itself. "Fair participation and collective will of all major stakeholders is required to improve the corporate governance culture of any country," he added.

The main objective of the institute is to engender sound corporate governance practices and provide an enabling environment for implementation of the code of corporate governance issued by the SECP. This would be achieved through creation of awareness about corporate governance holding conferences, seminars, lectures and exhibitions. The institute will also encourage compliance with socially responsible corporate practices, including socially responsible investing. The institute will also provide a platform for research and development work and in this regard will make available key knowledge tools such as a well equipped library and connectivity and network with other institutions involved in this area. It will act as a forum for participation to all concerned to contribute towards developing a balanced corporate governance framework and will issue guidelines on matters of corporate governance to directors, management, auditors' secretaries and general investors.



The founding members of the institute are the Securities and Exchange Commission of Pakistan; the State Bank of Pakistan; Pakistan Banks Association, Overseas Investors Chambers of Commerce and Industry; Federation of Pakistan Chamber of Commerce and Industry; Investment Banks Association of Pakistan; Leasing Association of Pakistan; Modaraba Association; Mutual Funds Association of Pakistan; Institute of Business Administration; Lahore University of Management Sciences; Institute of Chartered Accountants of Pakistan; Management Association of Pakistan; Karachi Stock Exchange; Lahore Stock Exchange and Islamabad Stock Exchange. The first ten-member board of the institute will be formed by the representatives of the founding members.

As a second major initiative, the SECP has notified the draft; Voluntary Pension System Rules 2004 for soliciting views and comments from asset management companies, insurance industry, general public and other stakeholders. Under the proposed rules, a new Voluntary Pension Scheme (VPS) is being introduced in the country. Under these rules, asset management companies and life insurance companies, duly licensed by SECP, would be authorized to offer and manage Pension Fund Schemes (PFSs). Such entities shall be referred to as Licensed Pension Fund Managers, Life insurance companies would also be authorized to offer Annuity Plans under the system.

All Pakistani national over 18 years of age, having valid National Tax Number, and not being entitled to benefits under any approved occupational pension scheme, shall be eligible to participate in the voluntary pension scheme. Pension Fund Managers, will maintain separate pension accounts for each participant who would be allowed to transfer the balance in his individual Pension Account' (IPA) from one Fund Managers to another. Balance in the Pension Fund would be invested in accordance with the criteria laid down by the SECP from time to time.

At the age of retirement i.e 60 years or earlier (in case a participant develops disabilities), the participant would be allowed to withdraw 25 percent of the amount in individual pension account', while the remaining amount would be used to buy an annuity contract from a life insurance company of his choice. All other withdrawals would be subject to deduction of withholding tax and other conditions laid down in the Income Tax Ordinance. The proposed pension system is based on certain tax incentives/exemptions for which necessary amendments in the Income Tax Ordinance would be made.

The Federal Government has also specified pension fund scheme business, authorized under the Voluntary Pension System Rules, 2004 to be a form of business. The notification in his regard through the official gazette is being made and the timeframe for receipt of any suggestions/comments thereon is 14 days after the publication in the official gazette.