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Article | Global News Briefs

Nigeria: New voluntary pension contribution guidelines establish uniform rules, clarify previous reforms

Health and Benefits|Retirement|Defined Contribution

January 16, 2019

New guidelines in Nigeria establish uniform rules for voluntary contributions made to Retirement Savings Accounts and certain employer-sponsored retirement plans.


The National Pension Commission (PENCOM) recently published its “Guidelines on Voluntary Contribution under the Contributory Pension Scheme.” The guidelines establish uniform rules for the provision and administration of voluntary contributions (VCs) made to Retirement Savings Accounts (RSAs) and certain employer-sponsored retirement plans. Employers and employees in companies with at least three employees are mandated to contribute a combined 18% of pay to RSAs (see the related Global News Brief). The Pension Reform of 2014 introduced the possibility for employees to make additional VCs but did not provide specific tax or administration guidance.


  • Most individuals employed in the private sector are eligible to make VCs to a pension plan. This includes employees who are mandated to contribute to RSAs, employees covered by employer-sponsored Closed Pension Fund Administration plans (closed to new participants following the Pension Reform of 2014) and pensioners, among others. There is no option for employer VCs.
  • Individual monthly VCs should not exceed one-third of monthly salary.
  • Pension Fund Administrators will be required to maintain two separate VC-related balances for administrative purposes: one for retirement (the fixed balance) and the other for in-service withdrawals (the contingent balance). Any amounts designated as VCs are divided equally between the two balances. At retirement, the account holder will have the choice to withdraw the remaining contingent balance or consolidate it with the fixed balance.
  • Prior to retirement, VCs and any related earnings may be withdrawn from the contingent balance after two years and then every two years thereafter. Fixed balances are withdrawable only on retirement.
  • Accrued income received from the contingent balance will be taxable to the individual if withdrawn within five years of the related VC deposit. Proceeds from the fixed balance (at retirement) will be tax-free like mandatory RSA contributions.

It should be noted that certain items covered in the guidelines (e.g., withdrawals and tax treatment) were previously published by PENCOM in November 2017 in order to address the perceived overuse of VCs to avoid income tax. So the new guidelines both consolidate existing regulations and clarify certain previously unaddressed matters.


Voluntary retirement saving in Nigeria is underdeveloped, a fact that the Pension Reform of 2014 was meant to address. Few multinationals surveyed by Willis Towers Watson offer supplemental occupational retirement benefits to their staff. That said, VCs have been leveraged in recent years as a broader tax-effective reward tool that can be used to defer direct cash compensation (such as a portion of performance bonuses). As such, employers should review their related practices to ensure compliance and augment communications, particularly the tax implications of withdrawals by staff.

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