Integrated circuit packaging system with interposer and method of manufacture thereof

A method of manufacture of an integrated circuit packaging system includes: attaching a lower integrated circuit, having a first through via, over a substrate with the first through via coupled to the substrate; mounting a pre-formed interposer, having an interposer through via and an integrated passive device, over the lower integrated circuit with the interposer through via coupled to the first through via; attaching an upper integrated circuit, having a second through via, over the pre-formed interposer; and forming an encapsulation over the upper integrated circuit and the pre-formed interposer.