The National Pension Commission (PenCom) has introduced substantial changes to the Voluntary Pension Contribution (VC) Guidelines under the Contributory Pension Scheme (CPS). The updates, outlined in a circular to all licensed pension fund operators, aim to align the guidelines with the objectives of VCs and current economic realities.
The amendments aim to provide quicker access to VCs for contributors and harmonize the guidelines with extant tax laws, reducing tax liability for non-mandatory contributors. This clarification removes ambiguity around VC taxability, increasing workers’ disposable incomes. By allowing earlier access to VCs, PenCom recognizes the importance of providing contributors with greater flexibility in managing their retirement savings.
The following are the key changes to the VC guidelines:
- Mandatory contributors (comprising Nigerian employees in Nigerian employment) can now access 50% of their VC after one year, reduced from the previous two-year waiting period.
- Non-mandatory contributors (including retirees, members of the armed forces, political office holders, individuals in approved existing schemes, and expatriates) can access up to 50% of their VC after one year, regardless of their employment contract end date.
- Taxability of VC income earned (accrued interest) only applies to both mandatory and non-mandatory contributors for withdrawals made within five years. This means that non-mandatory contributors will no longer be taxed on the principal amount, aligning their tax treatment with that of mandatory contributors.
- The circular specifies the required documents for VC withdrawals, including a letter of employment, pay slips, completed VC withdrawal forms, and retirement savings account statements. The introduction of pay slips as a required document is a new development.
Contributors and employers are advised to contact their Pension Fund Administrators (PFAs) for guidance and information on the amended guidelines. As the industry adapts to these changes, stakeholders will be watching closely to ensure a smooth transition and optimal outcomes for contributors.
You can download the full Circular from PenCom here
