Nigeria’s pension regulatory authority, the National Pension Commission (PENCOM), has set limits on withdrawals from voluntary contribution accounts to once every two years in order to curb frequent withdrawals and ensure appropriate tax payments.
In a circular to all pension fund administrators (PFAs) and pension fund custodians (PFCs) at the weekend, PENCOM said it was communicating new guidelines on withdrawals from voluntary pension contributions (VC) pursuant to the high trend of requests for withdrawals from VCs, usually shortly after contribution.
According to PENCOM, the high incidence of withdrawals 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.
The new guideline, effective 1 December 2017, mandates compliance with the procedures by all licensed PFAs/PFCs or face sanctions from PENCOM.
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“Withdrawals from VC account is limited to once every 2 years,” it said, noting that subsequent withdrawals shall also be limited to the incremental contributions from the last approved withdrawal date.
It also set limits to amount of withdrawals and allocation of VC to retirement benefit, saying that for mandatory contributors, 50 percent of the VC is available for withdrawal, subject to the limit on number of withdrawals, and that taxes would be deducted on incomed earned in line with Section 10(4) of the Pension Reform Act, 2014.
“The remaining 50 percent is unavailable for withdrawal. It will be re-allocated to the contributor’s retirement benefit and available for use at retirement date,” it noted.
PENCOM equally said the limit on the number of withdrawals 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.
The pension regulator said it expects that the circular would curb the high rate of voluntary contribution withdrawals, ensure appropriate tax payments and strengthen the process of voluntary contribution administration.
To this end, it advised all employers 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.