Uptake for retiree annuity gains traction as life expectancy increases
Nigeria is currently seeing rise in life expectancy, and so the need to secure old age is driving uptake of annuity by retirees and even those looking into the future for protection.
This is not only common with retiree annuity being promoted as a retirement option in the Pension Reform Act 2014, but also in annuity products managed separately by life insurance companies.
The life annuity portfolio is growing and will be a major revenue source for life insurance companies in the future, according to experts at AIICO Insurance Plc.
According to the United Nations, the current life expectancy for Nigeria in 2022 is 55.44 years, a 0.57 percent increase from 55.12 years in2021, and a 0.57 percent increase from 54.81 years in 2020.
The life expectancy for Nigeria in 2019 was 54.49 years, a 0.58 percent increase from 2018.
In the first quarter of 2022 report on retirement through Retiree Life Annuity, the National Pension Commission granted approval to 3,264 retirees move Retirement Savings Account (RSA) balance to life insurance companies. The number was much than 2,647 that go approval for the same purpose in the last quarter of 2021.
In the Q1 period, a total lump sum of N13.21 billion was approved for payment to the retirees, while the sum of N22.69 billion was approved for payment to 14 Retiree Life Annuity Providers as premium in return for total monthly/quarterly annuities of N231.93 million.
In the last quarter of 2021, a total lump sum of N7,176.57 million was approved for payment to the retirees, while the sum of N16,898.18 million was approved for payment to 14 Retiree Life Annuity Providers as premium in return for total monthly/quarterly annuities of N173.76 million
Babatunde Fajemirokun, group-managing director AIICO Insurance Plc said during a media engagement recently that AIICO is doing everything possible to deepen annuity business in order to take advantage of its inherent opportunities.
Fajemirokun who described annuity business as a game changer for everybody noted that, the insurer is committed to a robust and effective annuity service.
He noted that a lot still need to be done to deepen the business in Nigeria, adding that ‘we are not there yet, but step by step, we will get there.’
Speaking on ‘Understanding Annuity Business, Victor Owotorose, senior manager, Business Development, AIICO Insurance stressed the importance and benefits of annuity to the clients and the growth of insurance industry.
Annuities, he stated are insurance contracts that promise to pay you regular income immediately or in the future.
According to him, a deferred annuity has an accumulation phase followed by a disbursement (annuitisation) phase; while an immediate annuity converts a lump sum into cash from day one.
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 pay out potentials.
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. The goal of an annuity is to provide a steady stream of income, typically during retirement.