The Securities and Exchange Commission of Pakistan (SECP) has introduced a Passive Equity Sub-Fund under the Voluntary Pension Scheme (VPS), giving savers a low-cost way to invest in the stock market. It will take effect from January 1, 2027. Moreover, pension fund managers will have to offer it alongside the existing Equity, Debt and Money Market Sub-Funds.

Savers will then be able to choose between actively managed equity funds and passive funds that track a specified market index. Those who prefer professional stock selection can stay with the active Equity Sub-Fund. The change widens the menu for savers who want market exposure without paying for active stock picking.

Meanwhile, fund managers can run the new sub-fund by tracking an index directly or by investing in exchange-traded funds (ETFs). Under the ETF route, managers can buy equity ETFs listed on the Pakistan Stock Exchange. Therefore, savers would gain diversified exposure to the equity market. The sub-fund will sit beside existing options rather than replace them.

Additionally, the SECP has capped fees to protect savers. The management fee for an ETF-based Passive Equity Sub-Fund will not exceed 0.75 percent per year. However, a manager that invests in ETFs run by its own asset management company cannot charge an additional management fee. This rule avoids two layers of fees on the same investment. Fee limits matter because retirement savings grow over many years.

SECP Chairman Dr. Kabir Ahmed Sidhu said the new sub-funds would give pension savers more choice in managing retirement savings. He added that they would offer a cost-efficient way to participate in the stock market. Furthermore, he said the reform would support wider participation in the voluntary pension system. It would also strengthen long-term retirement savings.

Still, savers should review the fund options and fees before they decide. Finally, pension fund managers have until January 1, 2027, to prepare for the launch.