Insurance companies undertaking life business have received a total sum of N353.7 billion as premium from retirees in the Contributory Pension Scheme (CPS) who opted for annuities.
The figure covers total premium paid for life annuities from inception of the CPS, up to first quarter of 2019.
Annuity for life, as it is popularly called, is a type of annuity contract that provides, in return for a lump sum, a monthly or quarterly payment starting immediately after retirement and continuing for the rest of the retiree’s life.
The contract is often purchased by retiring persons who want an income that is guaranteed to last for the rest of their lives, no matter how long that might be.
The first quarter report released by the National Pension Commission (PenCom) shows that the Commission approved a total of 4,264 applications for retirement under life annuity during the quarter, bringing the total number of retirees receiving their retirement benefits through the annuity plan to 65,916 from inception. The 4,264 retirees during the first quarter paid premium of N24.81 billion to insurance companies and monthly annuity of N257.26 million.
This resulted in total premium of N353.69 billion and monthly annuity payments of N3.52 billion as at the end of first quarter 2019.
A lot of retirees have continued to show interest in taking up annuity for retirement benefits as provided in the Pension Reform Act 2014, resulting in monumental growth in life business of insurance companies.
The insurance regulator, National Insurance Commission (NAICOM), had noted that increase in premium of life companies offering annuity has seen the industry life premium grow by 37 percent since the beginning of 2014.
Tunde Fajemirokun, managing director/CEO, AIICO Insurance plc, said during a media interaction that annuity business was contributing a huge premium to the life insurance business in the country. Fajemirokun said AIICO would continue to take advantage of this opportunity, mainly by effectively managing its risk exposure to ensure it continues to add value to its portfolio mix.
Section 7 (1a) of the Pension Reform Act 2014 states that an employee on retirement shall procure Annuity for Life Policy or Programmed Withdrawal.
The lump sum for the procurement of Annuity for Life Policy or Programmed Withdrawal must have been accumulated through series of employer/employee contributions into the Retirement Savings Account of the retiring employee throughout his/her working career.
Annuity for Life Policy is a retirement instrument option for retiring employee offered by a life insurance company licensed by NAICOM.
Analysts say this is likely to grow over time given that a lot of the retirees under the CPS were beginning to be more aware of the benefits of annuity, but raised concern over the capacity of the market to absorb the size of the risk.
According to the African Insurance Barometer, launched in 2017 by the African Insurance Organisation (AIO), individual annuity business is the fastest growing personal line business particularly in sub-Saharan Africa, including Nigeria.
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