Annuity is a series of payment made at (equal) intervals of time in consideration of a lump sum or a regular contribution made over a pre-defined period.
We have different types of annuity but the type being made popular in Nigeria through the Pension Reform Act (PRA) 2004 is called Immediate Annuity.
Section 4 of the PRA allows an employee to use the amount accumulated in his Retirement Savings Account (RSA) for the purchase of either programmed withdrawal or life annuity at retirement or attaining the age of 50 years whichever is the latter.
He is also allowed to take a lump sum (at age 50 or at retirement whichever is the latter) from the RSA balance provided that the amount left after the withdrawal shall be sufficient to procure Annuity for life or fund Programme Withdrawals that will provide an amount not less than 50% of his annual remuneration as at the date of his retirement.
The Programmed Withdrawal is provided by the Pension Fund Administrators (PFAs) while the annuity for life is provided by licensed life insurance companies in Nigeria.
The Programmed Withdrawal and Annuity are two distinct options available to the retirees.
Both options, although have clearly distinct features; have been carefully chosen by the regulators to protect the interest of the retirees.
The process of selecting the providers of either option is also stringent to ensure that only the companies that are adjudged by the regulators to be capable are licensed/authorized.
Mr. Dimeji Olona the CEO of LASACO life, one of the licensed companies to provide annuity for life said that some of the advantages of annuity are: “That the product is used to take care of the basic fear of an intending retiree which is the risk of outliving his income which is called longevity risk. This risk is borne by the insurance company if the retiree lives very long. (i.e. a retiree that leaves service at the age of 60 and lives up to perhaps 90 years)Annuity for life can be used to solve the financial burden at old age”.
He also said that the Life Annuity authorized under the PRA 2004 is guaranteed for 10 years (i.e. if the annuitant dies before 10 years, the balance would be paid to the named beneficiary and if the annuitant survives the guaranteed period, the annuity is payable thereafter as long as the annuitant lives.
Another advantage mentioned by Dimeji Olona is that the Investment Risk is borne by the Annuity Provider and not the policy holder (annuitant) as a guaranteed sum is given to the annuitant on a regular basis in spite of inclement/harsh investment climate that might be experienced by the insurance company.
He commended the efforts of the regulators (i.e. the NAICOM, National Pension Commission and Lagos State Pension Commission et al) at ensuring that the retirees are well protected
and that all the providers of both the Programmed Withdrawal and Annuity work harmoniously and compete in a healthy environment. These are ingredients needed for the success of the Contributory Pension Scheme (CPS) of the government.
He affirmed that both the PFAs and Annuity providers are partners in progress as there cannot be an effective administration of annuity without involvement of PFAs who are supposed to accumulate the fund to use in purchasing the annuity for life.
