PenCom Releases Guidelines On Voluntary Contribution Under The Contributory Pension Scheme

Pension asset

The National Pension Commission (PenCom) recently released guidelines (the Guidelines) to provide clarity on voluntary contributions (VCs) under the Contributory Pension Scheme (CPS). The Guidelines are coming on the heels of PenCom’s circular of 16 November 2017 to all Pension Fund Administrators (PFAs) and Pension Fund Custodians (PFCs) on “Withdrawals from voluntary contributions”.

One of the key objectives of the Guidelines is to establish a uniform set of rules for the operation of VCs as well as define eligibility criteria for participation. The Guidelines apply to all voluntary contributions and shall also apply retrospectively. Key highlights of the Guidelines are provided below:


According to the Guidelines, the following persons shall be eligible to make VCs:

  1. Any employee in an organization with three or more employees
  2. Any worker or retiree in an organization that operates a Closed Pension Fund Administration and employed prior to June 2014, and employees/retirees in an organization with Approved Existing Scheme
  3. Any person who retired or disengaged, or whose employment was terminated and is currently receiving the pension under the CPS, but secures another employment on contract basis
  4. Any retiree under the defunct Defined Benefit Scheme, who secures another contract employment
  5. Judicial officers, members of the Armed Forces and the Intelligence and the Secret Services of Nigeria
  6. Persons appointed by the President, State Government and elected officers to hold office for a stipulated tenure and who are not careering civil servants
  7. Any foreigner residing and working in the formal sector in Nigeria.

General rules

Eligible contributors who wish to make VCs are required to notify their employers in writing, of intentions to make VCs and the amount to be deducted from their emoluments. In addition, VCs are to be made from an employee’s legitimate income and shall be restricted to one-third of the employee’s monthly salary as stipulated in the Labour Act, 1990.

The amounts so deducted as VCs are required to be remitted through an employer into a duly registered retirement savings account (RSA). VCs shall only be made once a month and all VCs are required to be made in Naira. PFCs are to report VC in excess of five million naira (₦5,000,000) in line with the Money Laundering Act (MLA) 2011 and the Nigerian Drug Law Enforcement Agency (NDLEA) requirement.

The penalty for failure to deduct or remit VCs within the stipulated timeline remains at a minimum of 2% of the total unremitted contribution for each month or part of each month the default continues.

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Active or mandatory contributors shall have 50% of their VCs available for withdrawal, provided the VCs are retained in the RSA for a minimum of 2 years before access. This implies that such contributors are entitled to withdraw 50% of their VCs once every two years from the date of last withdrawal. The balance of 50% shall be fixed and will only become available for withdrawal, on the date of retirement of contributors. In order to ensure accuracy and fairness, the PFA shall be required to ascertain and verify the portion of contributions that qualify for withdrawal based on the 2-year rule, before withdrawal by an applicant. For the purpose of determining the portion of contributions that qualify for withdrawal, the first date of pension contributions into the RSA shall be the date for counting period for the two years’ maturity.


The 2-year rule for retention in RSA before access shall not apply to persons mentioned in (3) to (7) under eligibility above. Such persons shall have their VCs retained in their RSAs and shall only have access to their contributions at the expiration or termination of their contracts.

Tax implications

  • Income accruing on VCs are taxable, where the withdrawal is made before the end of five (5) years from the date the VC was made. This is in line with Section 10(4) of the Pension Reform Act 2014
  • For persons mentioned in (3) to (7) under eligibility above, tax deductions in respect of VCs are based on both principal amount and income earned, where withdrawals are made in less than 5 years from the date of the contribution
  • PFCs are required to remit all tax deducted to the relevant tax authorities within 21 days following the end of the month of deduction. PFCs are also required to render returns of such remittances to PenCom twice yearly.

It is hoped that upon full implementation of the Guidelines, Nigeria will have a pension system that is sustainable and has the capacity to achieve the ultimate goal of providing a stable, predictable and adequate source of retirement income for each employee in Nigeria. With the clarity provided, it is hoped that the objective of ensuring VC withdrawals are not abused, will be achieved. Further, it is expected that Joint Tax Board will release similar circular validating the position of PenCom especially as it relates to categories of persons covered in (3) to (7) under eligibility.

Please click here to download the Guidelines.