PenCom sets new rules for

voluntary pension contributions

The Circular

Pencom stated in the circular that Finance Crime Commission

it has observed a high trend of (EFCC) in respect of lodgements
requests for VC withdrawals of N5 million and above.
within a short period of time after
contribution, which seems to Employers and employees
defeat the purpose of the law The Circular seems like a reaction
which was to enhance pensions at to the notices issued by the Lagos
retirement. To discourage this State Internal Revenue Service
trend, PenCom has stated that the and the Joint Tax Boards (see our
time frame for withdrawal of VC previous alerts, JTB and LIRS).
shall be once every 2 years from PenCom therefore seeks to clarify
the last approved withdrawal the position for Pension Fund
date. Subsequent withdrawals Administrators, Custodians as
would only be on the incremental well as employers and employees.
contributions from the date of the
last withdrawal. A few pertinent questions need to
be addressed:
For mandatory contributors, 50%
of the contribution will be treated Whether the PenCom has the
as contingent and available for powers to issue the
The National Pension withdrawal once every two years guidelines – To the extent that
Commission has introduced (with taxes deducted on income the new rules are inconsistent
restrictions on the earned), while the balance of 50% with the provisions of the PRA,
withdrawal of voluntary can only be withdrawn on PenCom does not have powers to
contributions (VC). VCs can retirement. modify the law. However, under
only be withdrawn once Section 23(1)(b) of the PRA
every two years, up to a For exempt/foreign contributors PenCom may provide clarity on
maximum of 50% of on the other hand, they are also matters relating to administration
cumulative contribution bound by the restriction of of pension funds, as long as it is
over time. This is to prevent withdrawing once every two years, not in contradiction of the PRA.
abuse and ensure that the but they are allowed to withdraw
scheme meets the purpose all the funds in their VC account Whether the restricted 50%
for which it was created. after two years of contribution. VC balance will be available
Tax will be deducted on any for 25% withdrawal under
withdrawal made within 5 years. the disengagement scenario
Taiwo Oyedele contemplated under Section -
taiwo.oyedele@pwc.com Takeaway 7(2) of the PRA
+234 1 271 1700 Ext 50002 The law allows individuals who
Pension Fund Administrators are forced to disengage or
Kenneth Erikume (PFA) voluntarily resign to make a
kenneth.y.erikume@pwc.com PFAs would need to update their withdrawal of an amount not
+234 1 271 1700 Ext 50004 systems to include a logic that exceeding 25% of the total amount
allows for the automatic credited to the retirement savings
Introduction restriction of withdrawals in line account. It is unclear whether the
with this Circular. It is expected 50% of VC which is supposed to
On 16 November 2017, the that for expediency the PFAs are be unavailable until retirement
National Pension Commission likely to comply rather than will be included in the calculation
(PenCom) released a circular challenge the regulator. of the 25%.
introducing some rules on the
withdrawal of VCs. The circular Paragraph 6 of the Circular When does the 2 years begin
will be effective from 1 December suggests that the PFAs would be to count? - The Circular is meant
2017. responsible for the deduction of to commence on 1 December
tax. It does not indicate if the tax 2017. Paragraph 5(a) states that
In July 2014, the Pension Reform will be a form of withholding tax the withdrawal will be once every
Act 2014 was signed into law to or PAYE. There is no clear 2 years from the last approved
replace the 2004 Act. The Act mechanism for this and the withdrawal date, which means
introduced a number of reforms, closest is Section 50(1) of the that it may start counting before 1
but it did not indicate any specific PITA. The PFAs in practice have December 2017 for those who
lock-in period before VCs can be already been complying with this have made withdrawals before the
withdrawn as was the case in the by computing income tax. Circular becomes effective. It is
old PRA. not clear how past withdrawals
PFAs are also required to provide will be treated for tax purposes?
information to the Economic and

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