The National Pension Commission (PenCom) has issued a circular on June 10, 2024, to all licensed pension fund operators, announcing changes to the Voluntary Pension Contribution (VPC) Guidelines under the Contributory Pension Scheme (CPS), effective October 28, 2018.

The key changes include:

– Faster access to VPC funds: Mandatory contributors can access their VPC after one year, while non-mandatory contributors can withdraw 50% of their VPC after one year.
– Taxation on income earned: VPC withdrawals within five years will be taxed only on the income earned, not the principal amount.

The amendments aim to align VPC objectives with current economic realitie

What we thing at RAC

By revising the Guidelines, PenCom aims to achieve two main goals.

Firstly, to make Voluntary Pension Contributions (VPCs) more accessible and aligned with their intended purpose, by reducing the waiting period for mandatory and non-mandatory contributors.

This change acknowledges the previous timelines as too lengthy and seeks to provide quicker access to VPC funds.

Secondly, to harmonize the Guidelines with the relevant tax laws, specifically section 10(4) of the Pension Reform Act, which states that only income earned from VPC withdrawals is subject to personal income tax.

This amendment clarifies the tax treatment of VPCs, reducing the tax burden on non-mandatory contributors and increasing workers’ disposable income.

While this revision is commendable, PenCom must ensure effective monitoring to prevent misuse of the VPC scheme and guarantee sufficient retirement funds for contributors.