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PenCom issues new guidelines on voluntary pension contributions

 

National Pension Commission (PenCom) has issues new guidelines on voluntary pension contributions

This is contained in a circular dated 16 November 2017 to all licenced Pension Fund Administrators and Custodians. Below are the highlights:

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Taxes will be deducted on any income earned if withdrawn within 5 years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All the VCs may be withdrawn after 2 years but subject to tax on both the principal contribution and income earned thereon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.
The Guidelines are effective from 1 December 2017.

 

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