…Explains difference between Programmed withdrawal, annuity

By Victor Ahiuma-Young

THE application of Programmed Withdrawal, PW, and Annuity under the Contributory Pension Scheme, CPS, has continued to generate controversies among Insurance, companies, Pension Fund Administrators, PFAs, and clients, especially retirees under the scheme.

Few days ago a leading Pension PFA in the country, the Trustfund Pensions Limited, brought together employers in its fold in the Lagos area to update them on new happenings in the pension industry as well get feedback  among others.

One of the issues discussed was the features of PW and Annuity.

The programme, known as  “Employers forum”, was well attended by Pension Desk Officers, PDOs, who mostly represented employers in the Trustfund Pension’s fold.

In his welcome remarks, Regional Manager, Lagos Region of Trustfund Pensions Limited, Mr. Obiora Ozoekwem, informed that the essence of the forum was to sensitise employers on the recent developments in the industry among others.

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According to him “ The essence of the forum is to sensitise employers on the recent developments in the pension industry, provide feedback for the PFA on how to improve quality of service delivery to relevant stakeholders such as employers, contributors etc, minimize the growth of un-reconciled    contributions and transitional contributory funds , enhance the compliance status of employers with Contributory Pension Scheme, and other regulations and guidelines issued by the National Pension Commission, PenCom.

Among paper presented were Employers’ obligations under the Pension Reform Act 2014, and Customer Relationship management.

Kick-starting the presentation with Employers’ obligations, Head, Compliance Department Trustfund Pensions Limited, Mr. Christopher Fakanlu, among others, took participants through obligations of employers as required by the PRA 2014, and devoted greater time to explain programmed withdrawal and annuity.

According to him, “Programmed withdrawal is a product offered by a pension fund administrator for periodic payments to a holder of a retirement savings account. It is calculated based o determined formula and methodology. Programmed withdrawal is one of the means through which a retiree can access his retirement benefits. A retiree can opt to receive this payment from his/her PFA on a monthly or quarterly basis.  Annuity is a stream of income paid to a retiree by a life insurance company on the basis of a contract between the annuitant and a licensed insurance company.”

Explaining how PW withdrawal is processed, Mr. Fakanlu  said  when a PFA receives customer application, it processes it and  sends the computed application to the National Pension Commission, PenCom for approval. PenCom will then approve or rejects the PW application and returns to the PFA. If it is approved by PenCom, the customer consents to the computation and signs off the lump sum agreement form. The PFA then sends payment instructions to the Pension Fund Custodian, PFC, to effect payment.  The customer will then receive payment notification from the PFA and customers bank.

Feature of PW annuity

Giving insight into the features of PW and Annuity, the Trustfund Pension head of Compliance Department, said “Programmed withdrawal is a product offered to retirees by pension fund administrators ( PFAs).  In addition to a calculated lump sum, it provides retiree a guaranteed income on a monthly or quarterly basis over an expected life span as determined using A ( 55) Tables of annuitants rates published by the institute of Actuaries of UK.”

Annuity on the other hand, he said “is an income replacement product offered to retirees by an insurance company with monthly or quarterly annuity payment over an expected life span as determined using A ( 55) tables of annuitants’ rates published by the institute of Actuaries of UK.”

According to him, “a retiree may move to retiree life annuity at anytime. Once a retiree transfers his pensions account to life annuity, he/she cannot move back to programmed withdrawal. However, he/she can move to another insurance company with the residual value only after two years.

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“For PW retirement benefit is in individual retirement savings account, RSA, while for annuity, retirement benefits are in a pool of annuity fund ( belonging to all members on annuity).  In PW, balance in the RSA is re-invested by the PFA to generate income for the retiree. The profit on investment is credited into the retirees retirement savings account. While, annuity, the premium transferred is invested in a central retiree life annuity pool, income on investment belongs to the insurance company.

“In PW, retirees benefit from periodic pension enhancement resulting from returns on investment of the pension funds in their RSA.  But for annuity, there is no increment on the payment assured for life. Similarly,  in PW balances of retirement benefits remain in the retirees RSA and retiree receives quarterly RSA statement or on request.  While on the other hand, retiree on annuity does not receive any RSA statement.

Also, upon demise of a retiree, the RSA balance with accrued interest shall be paid in full to the legal beneficiaries of the RSA holder in PW.  But Annuity is guaranteed for only 10 years. If the retiree dies after the guarantee period, beneficiaries are not entitled to the deceased balance in the annuity pool.”



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