• Friday, December 01, 2023
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Retirees move N563bn pension funds into insurance sector

Retirees move N563bn pension funds into insurance sector

A total of N563.23 billion of pension funds under the Contributory Pension Scheme have been moved into the nation’s insurance industry as at the end of June 2022.

Available data from the National Pension Commission (PenCom) show that 98,402 retirement savings account (RSA) holders, including 54,897 from the federal government, 11,955 from states and 31,152 from the private sector, are already collecting monthly pensions from life insurance companies.

On a monthly basis, the retiree life annuitants receive about N6.62 billion as pensions, according to the data.

The National Insurance Commission (NAICOM), the insurance industry regulator, believes that more of the pension funds should move into the insurance industry, urging players to build the required capacity.

Sunday Thomas, CEO of NAICOM, had described annuity as the next big business for insurance industry, saying the country’s growing pension funds, now in trillions, would empty themselves into insurance through annuity.

He said this was premised on growing awareness among retirees and contributors about the benefits of annuity for life as a unique retirement product.

“Huge pension funds are emptying themselves into the insurance industry as annuity,” he said.

At a recent Insurers Committee Meeting held in Lagos, NAICOM, it was learnt, directed insurance companies offering annuity to extract specific information on the cost structure and other issues hindering competitiveness of annuity products.

It also directed the Nigerian Insurers Association (NIA) to collate, harmonise and submit to NAICOM specific issues allegedly hindering annuity products.

Segun Omosehin, deputy chairman of the Insurers Committee, confirming the plan of the committee to review operations of the annuity business, said a committee had been set up to look at how to take better advantage of the annuity business.

“We are looking forward to the outcome of the committee meeting as annuity is a big business for us,” Mosehin, who is also the managing director of Old Mutual Life Assurance, said.

Retiree annuity is a retirement instrument option for retiring employees offered by a life insurance company licensed by NAICOM.

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.

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Section 7(1a) of the Pension Reform Act 2014 says: “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 a series of employer/employee contributions into the RSA of the retiring employee throughout his/her working career.

Victor Owotorose, senior manager, business development at AIICO Insurance, speaking on the company’s inroads into the annuity market, outside the retiree life annuity under the pension scheme, said the importance and benefits of annuity to the clients and the growth of insurance industry could not be overemphasised.

Annuities, according to him, are insurance contracts that promise to pay you regular income immediately or in the future.

Owotorose said annuity can be bought with either a lump sum or a series of payments contributed over time, adding that annuities come in three main varieties -fixed, variable, and indexed – each with its own level of risk and payout potential.

The income received from an annuity, he said, is typically taxed at regular income tax rates, which are usually lower unlike when calculated with long-term capital gains rates.

Owotorose defined annuity as a contract between “you and an insurance company in which you make a lump-sum payment or series of payments and, in return, receive regular disbursements, beginning either immediately or at some point in the future.”

He said: “The goal of an annuity is to provide a steady stream of income, typically during retirement. Many aspects of an annuity can be tailored to the specific needs of the buyer. In addition to choosing between a lump-sum payment or a series of payments to the insurer, you can choose when you want to annuitise your contributions — that is, start receiving payments. An annuity that begins paying out immediately is referred to as an immediate annuity, while one that starts at a predetermined date in the future is called a deferred annuity.”
Temiloluwa Bamgbose