Tuesday, 3 September 2013

Before the Golden Years

Written by Funmi Ilesanmi

IS IT TOO EARLY TO PLAN FOR A COMFORTABLE RETIREMENT?

When is the appropriate age to start thinking of or planning for Retirement? Do you really have the future sorted to ensure that you live well in old age? It is amazing to know that some young adults make fun of impoverished aged people wondering what they did with their youth, yet these same young adults are gradually strolling down the same path.

Retirement is an inevitable event that most people pay little or no attention to with a mindset that the future will take care of itself. You will definitely get to a point in your life that you will not be as active as you are presently. Yes, there are investments you can make, building projects, business partnerships, stock purchases and so on; but there will come a time when all you need is a running account with income without necessarily lifting a finger to do anything.

With these thoughts, I will like to expose you to two investments options (for workers based in Nigeria) that can help you retire well – Immediate Annuity Plan and the Deferred Annuity Plan.

Immediate Annuity Plan
Personal Annuity Plan is a pension plan guaranteed to pay you an income from retirement, for the rest of your life. According to the 2004 Pension Reform Act, at retirement, you can only access your Retirement Savings Account opened with a Pension Fund Administrator through the following means:


  1. Lump Sum: A lump sum of money is paid once at retirement (subject to adequate provision for Annuity or Programmed Withdrawal).
  2. Periodic Payment only through: 
  • Programmed Withdrawal is offered by a Pension Fund Administrator: Income is paid to a retiree for as long as his account balance lasts. OR
  • Life Annuity is offered by a Life Insurance Company: Income is paid to a retiree for as long as he lives.


A Life Annuity is a series of payment made to a person (called an Annuitant) for the rest of his life upon payment of the purchase price which is usually paid once.
Other Attributes of Life Annuity:

The Personal Annuity Plan offers the following enhanced options:


  1. Level Income Annuity: This is a fixed payment plan. This option pays the highest start income however the amount remains the same throughout the Annuitant’s lifetime.
  2. Spouses Option: This Annuity option provides a spouse cover of 50% or 75% of your pension. In the event of the Annuitant’s death, the spouse is paid this income for the rest of his/her life.
  3. Increasing Annuity: This option creates an increase in the Annuity Amount at each Policy Anniversary. The standard increase offered is 5% or 7.5% each year, on a compounding basis.


What’s in it for me?

  • Income is paid to the Annuitant from retirement, throughout his lifetime (no matter how long the retiree lives).
  • There is guarantee that income cannot reduce no matter what happens
  • Rate on amount payable is relatively higher.
  • Transference of risk to your Annuity company.


How to get started?

  • Notify your PFA of your intent to opt for Annuity while processing your retirement benefits (at least 3 months to retirement).
  • Obtain Retirement Saving Account balance or Template.
  • Contact your Annuity company (or its representative) to commence Annuity processing.
  • Obtain a quotation 
  • The company will prepare a provisional agreement for you and dispatch same to the PFA for onward dispatch to PENCOM.
  • Annuitant’s account will be credited monthly when the Annuity premium is received from the PFC/PFA.


 Deferred Annuity Plan?
It is a Product in which you as the Policyholder contributes premium(s) for a period of time (deferred period), that would be used to purchase life annuity (pension for life), starting after the deferred period chosen by you.

This plan is aimed at saving towards retirement and ensuring a regular source of income at retirement and for the rest of your life. It is specially designed to guide savings towards retirement and importantly, to decide on the amount available to one monthly, at retirement.

Deferred Annuity is for the benefit of those who want to augment their pension package/Annuity at Retirement. Regular Contributions or Lump Sum can be made into this plan and the proceeds are used to purchase our Personal Annuity Plan at retirement.

What is in it for me? (Benefits):

  • Payment of Annuity is for life thus ensuring a regular source of income.
  • Provided the policy has been in operation for 3 years, it qualifies for a loan.
  • It offers a 25% lump sum withdrawal after the deferred period.
  • Flexibility to determine the deferred period and payment frequency.
  • Provides immediate payment of lump sum benefit upon death during the deferred period of accumulated contributions made as well during the guaranteed period.


Other Attributes of Deferred Annuity:

  • Additional Life cover, Critical illness and accidental total permanent disability are available as riders. 
  • This policy qualifies for Tax relief thereby reducing your tax incidence.
  • The policy can be paid either as a single, annually, half yearly, monthly or quarterly premium.


How to get started?

  • The deferred period will be chosen by you
  • During the deferred period - The product operates as a regular savings product with interest accrued according to the Interest Rate, reviewed annually
  • At the end of deferred period- the product automatically converts to an Annuity with purchase value equivalent to accumulated value of contributions. (Or you can determine how much you want at retirement to decide on the premium to pay now). The annuity rates will be based on the prevailing Annuity rates at maturity.
  • Quotations: Two quotation options are available:

1. Estimated contributions required to earn a desired annuity
2. Estimated annuity a desired contribution can purchase

I know sometimes the thoughts of going into a new investment can be scary for people but think about how much scary it would be if you wake up one morning at 60, with no job and no income. One thing is certain, those golden years will come so how prepared are you right now?

About the writer
Funmi is a seasoned Funds Consultant with Leadway Assurance. For more tips on retirement planning email her on f-ilesanmi@leadway.com

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