Voluntary Contributions are extra funds you can opt to add to your mandatory pension contributions, or simply set aside as retirement savings. These funds would be deducted from your monthly emolument by your employer and remitted into your ARM Pensions Retirement Savings Account (RSA), along with your regular pension contributions.
VC differs from other regular savings you may have, as it is deducted from your salary before tax. This is a significant advantage of the VC, as the contributions have tax incentives and could lower your overall tax liability.
Voluntary Contributions are pooled into the ARM Pensions RSA Fund and, therefore, are invested and managed in the same thorough manner as your regular pension contributions.
An additional advantage, and a major difference from regular pension contributions, is that you are at liberty to decide the amount you wish to contribute, in addition to the frequency of the contributions; e.g. monthly, quarterly, bi-annually or annually.
You can withdraw from or liquidate 50% of your VCs that have been credited into your RSA for at least 2 years, once every two years, from your last approved withdrawal date. Note that tax will be deducted on the accrued interest at the point of withdrawal where contributions is less than 5 years. Click here for updates on the withdrawal guidelines.
The ARM Pensions VC is managed by our experienced professionals and, therefore, would enjoy our notable investment management expertise.
The table below provides an illustration of the potential benefits of saving through the VC scheme, compared to saving through regular contributions into a deposit or savings account.
| Option 1: Regular Savings | Options 2: VC | |
|---|---|---|
| Gross income per month | 500,000 | 400,000 |
| Savings (VC) | 0 | 10,000 |
| Taxable income | 500,000 | 400,000 |
| Tax 15% | -75,000 | -60,000 |
| 425,000 | 340,000 | |
| Saving (Direct) | 85,000 | 0 |
| Net Cash Position | 340,000 | 340,000 |
| Number of years | Future Value(1) | Future Value(2) | Aditional Accumulated Savings |
|---|---|---|---|
| 5 | 6,941,922 | 8,166,967 | 1,225,045 |
| 10 | 19,553,289 | 23,003,869 | 3,450,580 |
| 15 | 42,464,317 | 49,958,020 | 7,493,703 |
| 20 | 84,086,706 | 98,925,537 | 14,838,830 |
| 25 | 159,701,963 | 187,884,663 | 28,884,663 |
Assumptions:
The above illustration shows two possible scenarios: regular savings (Option 1) and VC (Option 2), with the same gross income per month of N500,000. The key differences and advantages of VC illustrated above are:
Savings are on a pre-tax basis through VC, but on an after-tax basis through regular savings.
Saving via VC results in lower taxable income, which, in the example above is N400,000 compared to a higher taxable income of N500,000 through regular savings.
Based on the lower taxable income resulting from VC, with the same tax rate of 15%, the cash paid as tax is N60,000 vs N75,000 based on regular savings. In effect, with the same gross monthly income of N500,000, the individual’s effective tax rate is reduced to 12% from 15%.
In order to end at a similar net cash position of N340,000 in the two scenarios above, the highest amount that can be set aside through regular savings is N85,000, which is significantly less than the N100,000 saved via VC.
Based on the extra N15,000 saved through VC on a monthly basis, the VC savings option leads to significantly higher accumulated savings over time.
The higher your marginal tax rate, the higher the tax benefit you enjoy from VC, all else equal.
In summary, in addition to providing an avenue to set aside more funds towards retirement, the tax incentive is another key attribute of the VC Scheme. To enjoy the tax-free incentive, your voluntary contributions should have stayed in your RSA for a period of 5 years. The VC scheme is fully backed by the Pension Reform Act, 2014; therefore, you can be rest assured that your Voluntary Contributions are safe and in the right hands.
Every employee covered under the contributory pension scheme is eligible to make Voluntary Contributions. All you need to do is inform the relevant department in your organization (e.g. Human Resources or Finance) about your desire to make voluntary contributions, stating the amount and frequency.
In the event you decide to withdraw from your VC, all you need to do is complete and submit our benefit withdrawal form, attaching a passport photograph and letter requesting for your funds. Your application will be processed in line with PenCom guidelines, and benefits paid within 3 weeks.
The National Pension Commission on the 16th of November 2017 released a circular on withdrawal of Voluntary Contribution effective 1st December 2017. The salient points in this circular are:
Kindly complete this form. We will reach out to you shortly