Tuesday, January 23, 2018 11:56 AM / Deloitte
The National Pension Commission (PENCOM) on 16 November 2017 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
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
Key highlights of the guidelines are provided below:
1. 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.
2. 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 income 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.
3. 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.
here to download the Circular