The total premium remitted by Pension Fund Administrators (PFAs) into various life insurance companies in the country for life annuity purchased by retirees peaked at N12.09 billion as at December 31, 2012.
The Head of Benefits and Insurance at the National Pension Commission (PenCom), Mr. Olulana Loyinmi, confirmed this while reflecting on 'Issues Arising from Marketing of Retirement Annuities' at a workshop jointly organised by the commission and the National Insurance Commission (NAICOM) in Lagos recently.
Section 4 of Pension Reform Act, 2004 provides that an employee can on retirement make withdrawals from his Retirement Savings Account (RSA) in the form of a programmed monthly or quarterly withdrawal based on his life expectancy or life annuity bought from a life insurance company.
The retiring worker can as well withdraw a lump sum from the balance in his RSA provided that the amount left in the account after the withdrawal is enough to fund a life annuity or programmed withdrawals of not less than 50 per cent of his annual remuneration at the date of retirement.
Loyinmi, who gave an update on life annuity business in the country, recalled that retirement by life annuity under contributory pension started in 2010 and confirmed that only 10 life assurance companies are licensed to transact retirement annuity business in the country as at last year.
Loyinmi also confirmed that 2,343 retirees were on retirement by annuity as at last year while the total life annuity premium paid amounts to the various operators peaked at N12.09 billion and total monthly annuity/pension averages N118.06 million.
He observed that life insurers have adopted direct marketing and agency in their bid to sell annuity products to retirees, adding that a number of issues have arisen in the process.
Among the issues, is the need to design a standard template for the computation of expected annuity, adding that it is not ideal for insurers to be asking for PFA's programmed withdrawal template to underwrite annuity.
He noted the practice of marking up what PFAs use for programmed withdrawal and using it for annuity would not reflect the risk and return principle, stressing that retiree annuity should be better packaged.
He noted that lump sum payment are usually made by PFAs before transferring the balance to life insurers in the case of those retirees who opts for life annuity and wondered why some insurers still promise additional lump sums to annuitant. "What is the basis?" he asked.
According to him, while prospecting retiring and retired workers, some insurance companies tend to disparage the ownership structure of PFAs, making false claims to the extent that they are owned by politicians, hence unsafe.
Loyinmi however, assured that "PFAs are duly licensed operators after rigorous procedure" including passing the fit and proper person test.
Meanwhile, NAICOM's Assistant Director (Inspectorate), Mr. Sam Onyeka, affirmed that PenCom and NAICOM jointly issued a Regulation on Life Annuity pursuant to Section 4 (1) (b) of the Pension Reform Act, 2004.
He said the regulation specified the modalities for the administration of retirement benefits in respect of retirees who have chosen life annuity.
Also, the Commissioner for Insurance, Mr. Fola Daniel, has advised retiring workers to embrace the life annuity option in view of the fact that it guarantees them pension for at least 10 years or for as long as the retiree lives.
"NAICOM takes the issue of annuity very seriously and will do everything within its powers to protect the interest of the retirees. From now on, there is no reason for any retiree to be dissatisfied, and there is no longer any cause for anyone to queue up for pension benefits.
"With the risk of appearing to be a little partial, I will like to recommend the annuity option to any retiring employee. Not only does this option guarantee a regular payment for life it is also guaranteed for a minimum period of ten years", Daniel said.