At the point of retirement, the would-be retiree has two exit options, which are; Retirement Life Annuity (RLA) option and Programmed Withdrawal (PW) exit option.
Either way, both are meant to ensure an ex-worker enjoys his retirement after retiring from active service.
Programmed Withdrawal (PW) is a stream of income paid by a Pension Fund Administrator (PFA) to a retiree on a monthly or quarterly basis determined using a programmed withdrawal template over an expected lifetime. It is offered and administered by the PFAs under the regulation and supervision of the National Pension Commission (PenCom), the PW offers a retiree the option of a lump sum and regular monthly or quarterly pension payments.
Life Annuity product is a stream of income purchased from a life insurance company with the available Retirement Savings Account (RS) balance under the Contributory Pension Scheme (CPS) as a premium.
Annuity Portfolio Growth
With increased awareness on Retiree Life Annuity (RLA) in recent times, no fewer than 9,220 retirees opted for life annuity even as annuity fund portfolio hit N524.5billion in 2021.
This was an improvement when compared to 8,763 retirees who procured life annuity product in 2020.
In a 2021 annual report of the pension industry released by the National Pension Commission (PenCom) recently, the total premium transferred to life underwriters from inception of the Contributory Pension Scheme (CPS) in 2004 till December 31, 2021 stood at N524.55 billion.
Compared to N464.53 billion the annuity fund portfolio was as at December, 31, 2020, this translated to about N60billion growth within the period under review.
The growth rate of the fund, it was learnt, translates to about N25billion annual increase, even as total number of retirees on annuity increased from 83,568 in 2020 to 92,788 as at December 31, 2021.
A further breakdown of the total number of retirees showed that the federal government retirees accounted for 51,976 workers (56.02 per cent), the States Government retirees accounted for 11,320 (12.20 per cent), while the private sector retirees accounted for 29,492 (31.78 per cent).
However, the 9,220 retirees who opted for life annuity in 2021 received N29.35 billion as lump sum while N60.02 billion was paid as premium to life insurers in exchange for monthly annuity receipts of N610 million.
According to PenCom, the cumulative monthly annuity being received by retirees from inception to 31 December 2021 was N5.23 billion, with cumulative lump sum of N156.97 billion.
In the second quarter of 2021, however, PenCom granted approval to 1,708 retirees under the Retiree Life Annuity, as the total lump sum of N4,586.16 million was approved for payment to the retirees.
Stakeholders’ Responses
Speaking on annuity, the managing director/CEO, Great Nigeria Insurance Plc, Cecilia O. Osipitan, had earlier said, life annuity is a stream of periodic payments that commences at a specified date, which is either the normal retirement age or at 50 in the case of early retirement. The payment, she added, could either be monthly or quarterly depending on the retiree’s preference.
Osipitan highlighted the benefits to include; the continuous flow of regular income for the retiree, insulation from the risks associated with the investment of lump-sum benefits, structured management of resources and the transference of the risk of diminution in assets and possible failure of investments of retirees to insurance companies that are better equipped to manage such risks.
“Insurance remains the most reliable bedrock of our existence and cultivating the culture of insurance can never be over emphasised. There is a need to call for a paradigm shift through effective sensitisation of the insuring public as it is very important to imbibe the culture of getting appropriate insurance cover to protect our assets and lives in case of any eventuality,” she pointed out.
Meanwhile, the commissioner for Insurance/CEO, National Insurance Commission (NAICOM), Mr Sunday Thomas, had previously said, the Annuity business, which is an aspect of life insurance, had recorded a significant boost and showed positive growth in trust and confidence to the sector in recent times.
He said: “in recent times, annuity has recorded significant boost with an increase in its contribution to the sector. Prior to the last four years, annuity business was insignificant as far as the portfolio of the industry was concerned.
“Today, annuity business which is categorised under life business is in the neighbourhood of 35 to 40 per cent contributing to the total portfolio. We have over N14trillion in contributions to pensions. Now, it is expected that part of this will empty itself into the insurance business through annuity.”
According to him, “The public is becoming more exposed and knowledgeable about the workings of annuity. For life annuity, once you retire and you make it your choice, it is for life, until death do you part and there is a shift now from programme withdrawal to life annuity.
“So, we have the responsibility as regulator to strengthen the life operators so that they will be more alive to their responsibilities.’’
NAICOM, he said, is working assiduously to put in place measures to protect the expected funds, which informed the move to train and breed actuarial analysts, who will help measure and manage insurance associated risks.
“Annuity requires day-to-day measurement and management of its activities. As I speak with you right now, annuity accounts for about 40 per cent of our portfolio. That actually requires our attention,” he stressed.
