Services – Voluntary Contributions
Voluntary Contributions
The Pension Reform Act (PRA) 2014 encourages persons primarily exempted from the Contributory Pension Scheme (CPS), Retirees who have secured new jobs, and employees with existing mandatory Retirement Savings Account (RSA) to embrace Voluntary Contributions to enhance their retirement benefits.
This is irrespective of the mandatory contributions of 8% employee and 10% employer’s contributions paid periodically by employers into Retirement Savings Accounts.
It gives the contributor freedom to decide how much to save monthly based on income and expenses. In addition, any amount saved is tax exempt, as provided for in the PRA Act 2014. It also provides an avenue to set aside more funds towards retirement and enjoys the same returns and security as the Retirement Savings Account.
Please find further summary below
Features
- Backed by PRA 2014, Section 4(7).
- Deductions are from Salary before tax.
- Hence, Contributions are tax-free and lowers your overall tax liability.
- Paid in Nigerian Currency (Naira);
- Those exempted from the mandatory Retirement Savings account (RSA) in the PRA 2014, are eligible.
- 50% of every amount lodged as AVC shall be treated as “contingent” which is available for withdrawal after every two years.
- The remaining 50% shall be treated as “fixed” which can only be accessed upon retirement;
- Retirees and exempted contributors from PRA 2014 are entitled to withdraw all their AVCs in the RSA at the expiration of their contract of employment.
- The principal amount and any income accrued shall be subjected to tax where the withdrawal is made before five years from the date of the voluntary contribution;
Benefits
- Contributions made under AVC are tax exempt.
- Provides an avenue to set aside more funds towards retirement,
- It enjoys the same returns and security as the Retirement Savings Account
- It is flexible contributions can be made monthly, quarterly or annually.
- Favors Contributors in high income bracket because of its tax exempt status.
- It can be used to target mid to long term projects (Mortgages, Children’s education etc)
- Enjoys the unrivaled high and consistent return on the RSA.
- On the commencement of the PenCom policy that makes it possible to buy mortgage with pension savings, the larger the RSA balance, the larger the amount that can be used to participate in the mortgage scheme.
- Increased RSA balance at retirement
Dynamics
- You must be gainfully employed
- You must have a PIN number from PENCOM.
- An instruction must be issued to the officer or department responsible for pension deductions in your organization stating the amount for AVC.
- The funds are paid to the bank with the normal RSA.
- The AVC amount is stated on the schedule column with the header AVC.
Take Action Now
- Increase your Retirement Benefits and
- Enjoy reasonable tax savings now.
- Inform your HR/Accounts of your intention
- Instruct your HR/Accounts of the proposed amount accordingly.
- Check out for the alert after every remittance.
