The uptake for retiree life annuity as a retirement option under the Contributory Pension Scheme (CPS) has risen by 16.6 percent in one year, from N595.22 billion in the third quarter of 2022 to N697.148 billion at the same period in 2023.
In terms of monthly pensions, pay out by life insurance companies rose to N32.10 million in the third quarter of 2023, as against N5.95 million that was paid in the same period in 2022.
These rises according to industry analysts are due to the growing awareness of the need for financial security in retirement using annuity, which guarantees income for life.
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Niyi Onifade, managing director, Heirs Life Assurance Company said annuity pays retirees a steady amount, monthly or quarterly for as long as the annuitant lives. This way, the individual is assured of a great future even during retirement.
He said in this case, pensioners have every reason to live life confidently as the Annuity Plan takes care of the worries of retirement, specifically, the uncertainty of the future.
Onifade said creating the understanding was behind his company’s recent campaign pointing that awareness was an important step to get more retirees signed onto this beneficial plan.
“Everyone needs to understand the options open to them as they build their retirement plan, the CEO said.
Data from the National Pension Commission (PenCom) for the third quarter 2023 shows that Pension Fund Administrators (PFAs) submitted 4,147 requests from retirees to receive pension through Retiree Life Annuity (RLA) mode during the quarter under review.
Out this figure, 4,141 requests were approved, while six (6) were rejected due to incorrect computations, from the 4,141 retirees whose benefits were approved, 1,672 worked in the private sector, while the remaining 2,469 worked in the public sector.
Chika Onwunali, partner at Premium Debate said with life expectancy increasing and the cost of living rising, more and more people are looking for ways to ensure they have a guaranteed income for life.
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Onwunali said one of the factors driving uptake of annuity is the introduction of regulations that make annuities more attractive to consumers. Though, I am yet to see such in the pension regulation except with individual insurers, particularly when you consider freebies accruing to participants in programmed withdrawal made possible by PenCom.
Victor Owotorose, senior manager, Business Development, AIICO Insurance speaking on ‘Understanding Annuity Business’ 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.
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Sunday Thomas, commissioner for insurance, had described the potential of the industry growth from annuity business as huge, saying a lot of the pension funds will empty themselves into insurance as more people begin to understand the benefits of annuity.
While challenging life insurance companies to take advantage of this growth opportunity, he said the commission was building the human capital requirement that this segment of the business will require through its actuarial talent programme for the industry.
He said several initiatives have been designed by the commission to facilitate the attainment of the strategic focus, which will redefine the future of the Nigerian insurance market.
“The commission has already commenced the Actuarial Capacity Development Programme in collaboration with the College of Insurance and Financial Management, and the programme is expected to develop 100 certified actuarial analysts and a minimum of five actuaries in Nigeria by the year 2024,” he said.
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.
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