Annuities Are Better Than Programmed Withdrawals – NIA

Nov 26, 2008 (Daily Independent/All Africa Global Media via COMTEX News Network) -- Nigerian Insurers Association (NIA), the umbrella body of all insurance companies operating in the country, has affirmed that annuities are far better than programmed withdrawal if the benefits of annuities to retirees are anything to go by.

Chairman, Nigerian Insurers Association (NIA), Mr. Wole Oshin, who spoke at a two-day training workshop on Annuities Business Annuities organised by the association in Lagos, stated that annuities provide far greater guarantee, security and comfort than programmed withdrawal.

With regards to retirement benefits, Section 4(i) of the Pension Reform Act 2004 provides that a holder of a retirement savings account upon retirement or attaining the age of 50 years, whichever is later, shall utilise the balance standing to the credit of his retirement savings account for the following benefits

(a) Programmed monthly or quarterly withdrawals calculated on the basis of an expected life span;

(b) Annuity for life purchased from a life insurance company licensed by the National Insurance Commission with monthly or quarterly payments.

In view of the fact that Section 4 of the Pension Act provides for compulsory annuity as an alternative to programmed withdrawal to be purchased by a retiree under the scheme, the NIA boss said this provision has undoubtedly created enormous opportunities for enhanced life insurance business.

Oshin said "But you may ask, what happens to programmed withdrawal, an alternative provided under the Pension Reform Act 2004? For the avoidance of doubt, Annuities provide far greater guarantee, security and comfort than programmed withdrawal, which is time bound."

He went further to say that "In developed economies where life insurance contributes over 60 per cent of the total premium income of the insurance industry, much of the premium is from annuity business because it provides long term investible funds. So, the future of life insurance in Nigeria lies in the Annuity business."

The NIA boss stressed that the FSS 2020 document expects the insurance industry in the country to become the insurance market of first choice noted for high level of capacity, transparency, efficiency and safety and attain 15th position in world insurance premium generation by year 2020, while the insurance gap is also expected to be reduced from 94 per cent to 30 per cent by 2015.

According to the FSS 2020 policy document, the Government expects the insurance industry to contribute N12 trillion to the economy, he pointed out, noting that "these are achievable targets and we are determined to do so."

While expressing confidence that the insurance industry will achieve this laudable feat, he solicited that the industry should be given maximum support to attain its full potentials, saying the workshop on annuity business anchored by experts in life insurance, annuity and actuarial science, is part of the journey.

In a related development, Group Managing Director, Crusader Insurance Group, Tola Mobolurin, raised alarm that programmed withdrawal could create old beggars in case retirees who choose it live beyond their anticipated life expectancy.

He, however, pointed out that the people should have the option of choosing, saying "For those that the programmed withdrawal suits their purpose, they should choose programmed withdrawal. For those who think annuity will better meet their needs, they should also be allowed to choose the annuity plans that are available."

"I was talking with someone and he said they were asking them to spread their savings over 10 or 20 years, so I said if you retire at 50 and at 70 you have collected all your pension, what happens between the age of 70 and 90? Withdrawing all is out of ignorance. If you live longer than that, what happens, you will be with no income.

"So you can see in the future, a man of 70 years old is on the street as a beggar, and I am not so sure it is the intention of the Pension Act. The issue is that there are people whom programmed withdrawal can be adequate for, even at 70, when they have run out of savings, because they have other savings, they can fall back on them. The other savings can provide savings for them," he noted.