RETIREMENT SAVINGS: ANNUITY VS PROGRAMMED WITHDRAWAL

 

After retirement, retirees are entitled to a lump sum (LS) and periodic pension payments. The period payments can be accessed either as Programmed Withdrawal (PW) or Annuity, depending on what the retiree wants.

Programmed withdrawal mode of payment is offered by Pension Fund Administrators and regulated by the National Pension Commission(PenCom) while Annuity is a payment mode offered by the insurance companies and regulated by the national Insurance Commission (NAICOM).

KEY FEATURES OF ANNUITY

• Frequency of payment: The frequency of payment can be monthly, quarterly according to the choice of the retiree.
• Commencement of payment: Pension payments from the date of transfer of RSA balance to Insurer and will include pension arrears (if any) and other payments as agree with annuitant and subject to the provisions of the Pension Reform Act, 2004.
• Payment to beneficiary when the retiree dies: Whenever the retiree dies the beneficiary under a will or Letter of Authority is paid to the balance on the annuity. This is only guaranteed for ten years. If annuitant dies after more than ten years after the commencement of the annuity, the beneficiary will get nothing.
• Custody of funds: Retiree assets are held by the Insurance Company.
• Growth in funds: Return on investment are appropriated by the insurer to ensure that the annuitant receives their payments throughout their life time, regardless of how long they live.
• Contributions after retirement: A retiree on annuity who secures another employment after retirement can continue to contribute to his account with the Insurance company. The contributions received after retirement will be credited to the retiree’s account as Voluntary Contributions (VC) and can be accessed any time.
• Duration of payment: Annuity is paid to the retiree throughout their lifetime.

KEY FEATURES OF PROGRAMMED WITHDRAWAL

• Frequency of payment: The frequency of payment can be monthly, quarterly according to the choice of the retiree.
• Commencement of payment: Pension payments from the date of retirement i.e. include pension arrears (if any) and other payments spread over an expected life span.
• Payment to beneficiary when the retiree dies: Whenever the retiree dies the beneficiary under a will or Letter of Authority is paid the total balance on the RSA account.
• Custody of funds: Retiree assets are held by the Pension Fund Custodian.
• Growth in funds: Return on investment is added to the RSA balance.
• Change of withdrawal mode: A retiree on PW with a PFA can choose to terminate the PW and enter into an annuity contract with an insurance company at any time. However, a retiree cannot change from annuity mode to PW.
• Change of PFA: A retiree on PW with a PFA will be able to move to another PFA in line with the Pension Reform Act when the transfer window opens.
• Contributions after retirement: A retiree on PW who secures another employment after retirement can continue to contribute to his RSA. The contributions received after retirement will be credited to the retiree’s account as Voluntary Contributions (VC) and can be accessed any time.
• Duration of payment: Pension is paid to the retiree over an expected lifetime until the RSA balance runs out. 

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