With reforms in both insurance and pension sectors, especially as it affects retirement benefit management, retirees have become the toast of both insurance and pension managers, Ebere Nwoji writes.
With recent inauguration of the Insurance Policyholders’ Protection Fund Committee (IPPF) by the National Insurance Commission (NAIOM) ) and commencement of pilot phase of its free healthcare initiative tagged, “PenCare,” for low income earners under the Contributory Pension Scheme (CPS) by the National Pension commission (PenCom), the stage is set for stiff competition between insurance underwriters of annuity life and Pension Fund Administrators (PFAs) who operate programme withdrawal, as to who should take custody and payment of their retirement benefits.
Under the Pension Reform Act (PRA) 2014, retirees receive benefits from their Retirement Savings Account (RSA) primarily through a combination of a lump-sum payment and a regular pension for life. The Act said touching regular pension life payment, retirees are at liberty to receive their retirement benefits through programme withdrawal system administered by the PFAs or through life annuity payment administered by life insurance underwriters.
Programme Withdrawal
According to the Act, upon retirement or reaching age 55 (whichever is later), retirees choose one of the aforementioned pay-out methods.
If a retiree chooses programme withdrawal method of receiving his retirement benefit, his PFA takes custody of his savings and pays him a regular monthly or quarterly pension calculated based on his life expectancy. This is established at the onset of PRA2004, which established the CPS was placed at 18 years after retirement and while under annuity pay method, he receives his retirement benefits for life. This placed annuity at advantageous position over programme withdrawal.
But with repeal of PRA 2004 and its replacement with PRA 20014, there is no fixed number of years for receiving benefits under the programmed withdrawals system instead benefits are calculated to last for a retiree’s entire expected life span.
Pension experts said under programme withdrawal, duration is based on life expectancy. The law explicitly states that payments under programme withdrawal are calculated on the basis of retiree’s expected life span. His PFA spreads his RSA balance over this period to determine his monthly pension.
According to the pension law, if a retiree lives beyond his initial life expectancy, his pension doesn’t stop, rather his balance in his RSA is re-calculated to continue providing a pension for as long as he lives. But whether the amount he will be receiving after the expiration of life expectancy is up to half of his last month package is a big question to be answered by the PFAs who administer the programme withdrawal.
With this new position of the law on duration of benefit payment under the CPS, the edge which annuity has over programmed withdrawal was eroded while the issue of security of the life annuity fund under the custody of life insurance firm became another big issue given Nigerians’ apathy towards insurance and insurance related matters. The situation was worsened by weak financial base of some life insurance firms which hold custody of annuity funds.
African Alliance case
A case in point was the African Alliance insurance which faced severe liquidity challenges with mounting pressure on its annuity portfolio; thereby leaving thousands of retirees unpaid for months.But the situation was along the line saved by NAICOM, who intervened by transferring the troubled African Alliance annuity portfolio to Leadway Assurance Company Limited.Annuitants, workers staged a protest nationwide over the matter. This prompted the waning of retirees’ interest in annuity; with many who hitherto preferred annuity regretting and switching over to programme withdrawal.
Policy Holders ‘Protection fund
But thanks to Nigerian Insurance Industry Reform Act 2025, which instituted the policy holders’ protection fund with the primary purpose of securing savings of people under any form of insurance policy purchased. According to the commissioner for insurance, Mr Olusegun Ayo Omosehin, the IPPF serves as a statutory safety net for policyholders when an insurer becomes insolvent or is unable to meet its obligations.
According to the commissioner, its value goes beyond compensation, it protects households and businesses from avoidable loss, reinforces trust in insurance as a reliable promise, and helps preserve stability across the market.
He said NIIRA 2025 reflects the Federal Government’s commitment to a stronger, more resilient, and consumer-centric insurance industry” he assured.
With the IPPF as enshrined in NIIRA 2025 and recent inauguration of its committee charged with the responsibility of ensuring that the fund is sustain-ably financed, professionally managed, and capable of delivering timely and fair protection to policyholders among other mandate given to the fund managers, public confidence is restored on insurance companies who underwrite annuity that in the event of any distress of any annuity underwriter the annuitants have nothing to lose. Indeed, what the Nigerian insurance deposit corporation (NDIC) stands to do for bank depositors in case of distress of their bank is what the policy protection fund does for policy holders of any distress insurance company.
With this, many retirees have again renewed their interest in annuity method of savings and benefit payment, having the confidence that in the event of any distress by their annuity underwriter the policyholders’ protection fund is there for them.
PenCare Initiative
A few months back, PenCom kicked off the pilot phase of its free healthcare initiative, PenCare, for low-income earners under the CPS account holders who choose to receive their benefits through programmed withdrawal. The pilot phase is to take care of 30,000 retirees by giving them free medical care after which it will be extended to other contributors who receive their retirement benefit through programmed withdrawal.
With the PenCom’s Pencare, retirees who are at least 60 years old and receive a monthly pension of no more than N70,000 will receive free medical care under the PenCare initiative on the bases of first come, first served.
PenCom said the pilot phase targeted an enrolment of 30,000 eligible retirees. PenCom said the initiative acts as a Corporate Social Responsibility (CSR) project aimed at mitigating out-of-pocket medical expenses, alleviating financial strain, and preserving retirees’ dignity.
In administering the initiative, PenCom is collaborating with Pension Fund Administrators (PFAs) and Health Maintenance Organisations (HMOs).
This again seems to place programme withdrawal at a more advantageous position over annuity although the Director General of PenCom, Ms Omolola Oloworaran, said it will be extended to retirees under annuity plan.
But how soon this will be done is not certain thereby placing annuity services at a fresh disadvantaged position. These methods of benefits payment were brought to the fore by the CPS to address the problem of pension benefits payment, which before the commencement of the CPS had brought untold hardship on pensioners. At the onset of CPS, both PFAs and life insurers underwriting annuity have been competing for winning the interest of retirees. But as workers and retirees got more understanding of the workings of the two payment methods, many preferred annuities because of some advantages it has over programme withdrawal.
Meaning of Annuity
By its simple meaning, an annuity is a financial product that gives one a regular, guaranteed income when he retires. The regular income payment can be monthly, quarterly or annual payments. They can last for the rest of an annuitant’s life or for a fixed period.
According to pension and investment experts, this makes annuity a very low risk way of funding retirement and helps retirees with in planning and budgeting. Retirees usually buy annuities with money from their pension pot. They can only buy annuity when they are 55 which is their retirement age.
Annuity plan provides guaranteed regular payments during retirement for the rest of a retiree’s life in exchange for a lump sum payment or a series of instalments. It is a contract that you sign with an insurance company that ensures a steady and reliable income so that you are financially independent even during your retirement phase.
Speaking on the reliability of annuity plan Omosehin said, “With the establishment of the Insurance Policyholders’ Protection Fund Committee pursuant to Section 212 of the Nigerian Insurance Industry Reform Act, NIIRA 2025, we are moving from policy intent to institutional protection that gives policyholders greater assurance and gives the market greater credibility.”
He described the IPPF as a statutory safety net for policyholders when an insurer becomes insolvent or is unable to meet its obligations.
According to the commissioner, “It’s value goes beyond compensation, it protects households and businesses from avoidable loss, reinforces trust in insurance as a reliable promise, and helps preserve stability across the market. NIIRA 2025 reflects the Federal Government’s commitment to a stronger, more resilient, and consumer-centric insurance industry.”
He highlighted the objectives of the committee as ensuring protection of policyholders and beneficiaries covered under an insurance policy in Nigeria.