Introduction
The National Pension Commission (PenCom) has released a new Circular addressing “Emerging Matters on the Payment of Voluntary Contribution (VC) under the Contributory Pension Scheme (CPS).” This Circular follows a review of submissions from the Pension Fund Operators Association of Nigeria and other contributors, focusing on the Pension Reform Act (PRA) 2014 and existing guidelines on voluntary contributions.
Key Changes and Their Implications
Effective from June 10, 2024, the Circular introduces several significant changes for stakeholders involved in voluntary pension contributions:
1. Retention Period Adjustment
Contributors can now access 50% of their voluntary contributions after one year from the date of contribution. This is a reduction from the previous requirement of a minimum of two years. This change applies to both mandatory and non-mandatory contributors.
2. Uniform Withdrawal Rules
Retirees, exempted contributors, political office holders, employees in organizations with an Approved Existing Scheme (AES), and foreigners can now withdraw 50% of their voluntary contributions before their employment contracts expire. Previously, these contributors could only access their funds at the end or termination of their contracts.
3. Taxable Portion of Withdrawals
In alignment with Section 10(4) of the Pension Reform Act (PRA) 2014, any income accrued on voluntary contributions will be taxable if withdrawn before five years from the date of contribution. However, the Circular specifies that only the income (and not the principal amount) will be taxed for exempted individuals, aligning with the PRA’s provisions.
4. Required Documentation
PenCom has outlined specific documentation required from Pension Fund Administrators when requesting a “No Objection” for paying the contingent portion of voluntary contributions. These documents include employment letters, payslips, bank statements, residence permits for foreigners, and other relevant documents specified by the Commission. This applies to:
- Active Contributors under CPS
- Retired Contributors under CPS who secured new employment
- Retired Contributors under the Defined Benefit Scheme who secured new employment
- Exempted Persons
- Foreigners working in Nigeria
- Partners of firms, members of religious bodies, and non-executive directors of companies participating in CPS
Comments
The Circular aims to boost participation in the voluntary pension scheme and reflects PenCom’s efforts to address stakeholder concerns. By reducing the waiting period for accessing the contingent portion of VCs and standardizing withdrawal rules across different contributor categories, PenCom hopes to encourage more individuals to join the scheme and streamline its administrative processes.
Overall, this revision is a positive development, addressing critical issues within Nigeria’s pension framework, particularly concerning the taxation of voluntary contributions. Stakeholders are advised to seek professional guidance to navigate these changes effectively. InnerKonsult is well-positioned to provide the necessary support and expertise.
In conclusion,
PenCom’s new Circular brings welcome changes to the voluntary pension contribution scheme, offering greater flexibility and clarity for contributors. These updates not only enhance the appeal of the scheme but also ensure a more equitable and efficient system for managing voluntary contributions. Stakeholders should stay informed and seek expert advice to maximize the benefits of these revisions.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.
