The National Pension Commission (PENCOM) this week issued a Circular to all Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) communicating new guidelines on withdrawals from voluntary pension contributions (VC). The new guideline, effective 1 December 2017, mandates compliance with the procedures by all licensed PFAs/PFCs or face sanctions from PENCOM.
The Circular was issued pursuant to the high trend of requests for withdrawals from VCs, usually shortly after contribution. According to PENCOM, this defeats the purpose of VC which is to enhance pension at retirement. It also results in payment of insignificant amount of income tax to tax authorities.
Key highlights of the guidelines are provided below:
- Limits to number of withdrawals: Withdrawals from VC account is limited to once every 2 years. Subsequent withdrawals shall also be limited to the incremental contributions from the last approved withdrawal date.
- Limits to amount of withdrawals and allocation of VC to retirement benefit: For mandatory contributors, 50% of the VC is available for withdrawal, subject to the limit on number of withdrawals. Taxes would be deducted on incomed earned in line with Section 10(4) of the Pension Reform Act, 2014.
The remaining 50% is unavailable for withdrawal. It will be re-allocated to the contributor’s retirement benefit and available for use at retirement date. - Restriction on withdrawals by exempted/foreign contributors: The limit on the number of withdrawals described above also applies to exempted/foreign contributors.
However, exempted/foreign contributors can withdraw all VC amount after 2 years of contribution, subject to deduction of taxes on both income earned and principal amount when withdrawal is less than five years of the contribution.
It is expected that the Circular would curb the high rate of voluntary contribution withdrawals, ensure appropriate tax payments and strengthen the process of voluntary contribution administration. Employers are therefore advised to review the Circular and communicate this to their respective employees to ensure that they are properly guided on the implications of making and withdrawing voluntary pension contributions.
https://nairametrics.com/joint-tax-board-explains-voluntary-pension-contribution/
Is there a minimal amount and tenure for programmed withdrawal….