PenCom seeks tax exemption on investment of pension funds

PenCom seeks tax exemption on investment of pension funds

Chuks Udo Okonta

The income earned on investment of pension funds should also be exempted from taxation, the Director General National Pension Commission (PenCom) Mohammad Ahmad, has said.

In a statement he noted that though Sections 7 and 10 of the Pension Reform Act (PRA) 2004 provided for tax exemption at the point of accumulation and payment of retirement benefits, it is silent on taxation of income from investment of pension funds.

He said to ensure real returns on investment of pension funds and ultimately enhance the retiree’s retirement benefits, the income earned on investment of pension funds should also be exempted from taxation.

He said: “Exemption of Pension Fund from Tax: Even though Sections 7 and 10 provided for tax exemption at the point of accumulation and payment of retirement benefits, it is silent on taxation of income from investment of pension funds.

“In order to ensure real returns on investment of pension funds and ultimately enhance the retiree’s retirement benefits, the income earned on investment of pension funds should also be exempted from taxation. Thus, Section 7 should be amended to include tax exemption on income from investment of pension funds.”

 Chief Executive Officer, IBTC Pension Managers Dr Demola Sogunle, said tax inceptive should be used by the government to encourage employers to embrace the pension scheme.

Sogunle said one of the ways the government can assist to ensure the success of the scheme is to engender strict enforcement of the Pension Reform Act 2004.

He noted that the government needs to enforce stricter sanctions against defaulting employers, adding that the introduction of the new scheme has introduced nation-wide mass saving culture, which allow Pension Fund Administrators (PFAs) accumulate asset that can invested in financial markets.

He said: “Pension fund activities are capable of inducing financial market development through their substituting and complementary roles with other financial institutions, especially commercial and investment banks.

World-wide, pension funds are noted to be competing intermediaries for household saving and corporate financing which foster competition and may improve the efficiency of the loans and primary securities markets resulting in a lower spread between lending rates and deposit rates, and lower costs to access capital markets. PFAs also complement banks by purchasing long-term debt securities and investing in long-term bank deposit.”

He noted that one of the major challenges to the success of the scheme in the private sector is the fact many employees are yet to register with a PFA, while some employers fail to remit or are defaulting in remitting contributions into their employees Retirement Savings Accounts (RSAs).

“The issue of defaulting poses a major challenge to the success of the contributions pension scheme, since it influences the adequacy of the benefit payments to participants. A lot of enlightenment is required to ensure that employers and employees understand the benefits of keying into the contributory pension scheme, especially as it is mandatory by law,” he said.