A circular dated 16 November 2017 has been issued by the National Pension Commission (PENCOM) to all licenced Pension Fund Administrators and Custodians. Below are the highlights:

In respect of voluntary contributions (VCs) by Mandatory Contributors:

  1. Withdrawals from VC account is limited to once every 2 years
  2. Taxes will be deducted on any income earned if withdrawn within 5 years 
  3. 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)

  1. Withdrawals from VC account is limited to once every 2 years
  2. All the VCs may be withdrawn after 2 years but subject to tax on both the principal contribution and income earned thereon
  3. 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.

Attached below is our tax alert and a copy of the circular for your information:

Download PwC Tax Alert_Restrictions of withdrawal of voluntary pension contributions

Download PENCOM_Voluntary Contribution Revised Guideline 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.