Retirement benefits: Key features of Programmed Withdrawal (PW) and Annuity

Chuks Udo Okonta

Administration of Payment

PW is a product offered by Pension Fund Administrators (PFAs) regulated by the National Pension Commission (PenCom).

Annuity is a product offered by Life Insurance companies regulated by the National Insurance Commission (NAICOM).

Payment Period

PW: Pays pension over an expected lifespan and until the Retirement Savings Account (RSA) balance runs out.

ANN: Pays pension for life with a minimum guaranteed payment period of 10 years.

Payment to Beneficiary when the retiree dies

PW: Whenever the retiree dies, the beneficiary under a will or Letter of Administration is paid enbloc the balance in the Retirement Savings Account.

ANN: If the retiree dies within the guaranteed payment period of 10 years, the surrender value of the remaining amount within the period shall be paid as lump sum to the estate of the retiree or named beneficiary.

However (depending on the Insurer used), if the retiree dies after 10 years, the named beneficiary may not receive any payment.

Frequency of payment

PW: Pension payment can either be monthly or quarterly, based on the retiree’s choice.

Annuity payment can either be monthly or quarterly.

Commencement of payment

PW: Monthly payments commence from the date of retirement i.e. pension arrears (if any) are paid to the retiree.

ANN: Monthly payments commence once the Insurance company receives the premium.

Statement of Account

PW: Retiree receives monthly RSA statements.

ANN: No statement of account is given to the retiree.

Custody of Funds

PW retiree’s assets are held by Pension Fund Custodian.

Annuity retiree assets are held by the Insurance company.

Growth in Funds

PW: Returns on investment belong to the retiree in his RSA.

ANN: Returns on investment belong to the pool of insurance funds and not the retiree directly.

Change of Withdrawal mode

PW: 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.

ANN: A retiree on Annuity with an Insurance company cannot change to PW with a PFA.

Change of PFA/Insurance company

PW: 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 is open.

ANN: A retiree on Annuity with an Insurance company can move to another Insurance company after 2 years.