National Pension Commission (PenCom) has issued new guidelines on voluntary pension contributions (VCs).
A November 16, 2017 dated circular by the commission to all licensed Pension Fund Administrators (PFAs) and Custodians in the country, limited withdrawals from account to once every two years, among other changes it reeled out in the guidelines.
According to PenComm, the new guidelines take effect from December 1, 2017.
“In respect of voluntary contributions (VCs) by Mandatory Contributors: Withdrawals from VC account is limited to once every 2 years; Taxes will be deducted on any income earned if withdrawn within 5 years; Total withdrawal from VC account is limited to 50% while the balance of 50% must be kept to augment contributor’s retirement benefit.
‘In respect of VC by Exempt Contributors (including foreigners): Withdrawals from VC account is limited to once every 2 years; All the VCs may be withdrawn after 2 years but subject to tax on both the principal contribution and income earned thereon; Withdrawals made after 5 years from date of contribution will be fully tax exempt.
“Note: Mandatory Contributors are those legally required to make compulsory pension contributions under the pension act while those who have no legal obligations to do so are Exempt Contributors.
“In all cases, PFAs are to deduct tax where applicable and remit within 21 days to the relevant tax authority and report any withdrawal of N5 million or more to the EFCC.
“While it is clear that PENCOM is trying to address instances of abuse by some contributors, some of the new rules are inconsistent with the Pension Reform Act and therefore can be legally challenged. A better approach is for PENCOM to engage with key stakeholders and seek an amendment to the law.
Contributors are advised to note the new rules as PFAs are likely to implement the guidelines regardless of whether they are legitimate or not.”