PENCOM-Regulated Annuity Vs In-house Annuity: All You Need To Know

By Oyekola Taiwo Zacharia, email address: consciousofrisks@yahoo.com; phone no: 07063718460

Today we conclude our series on Annuity Insurance, intended at helping our readers understand available retirement schemes and their relative advantages.

The column continues next week with other important insurance and investment related dialogues; keep a date.

1. PENCOM-REGULATED ANNUITY

A PENCOM-regulated annuity is jointly regulated by two government agencies: the National Pension

Commission (PENCOM) and the National Insurance Commission (NAICOM).

It is designed for retirees seeking lifelong financial security by providing a guaranteed income for life, regardless of market fluctuations.

A PENCOM-regulated annuity is purchased from a NAICOM-approved life insurance company using

funds from the retiree’s Retirement Savings Account (RSA).

The Pension Fund Custodian (PFC) plays a crucial role between contributors and Pension Fund

Administrators (PFAs).

The PFC is responsible for safeguarding pension assets and ensuring the security of funds managed by PFAs. All pension assets are held in custody by the PFC, and benefits are paid strictly upon the instruction of the PFAs.

In addition, all pension contributions from different employers are received directly by the Pension Fund Custodian, ensuring proper monitoring and protection of funds.

IN-HOUSE ANNUITIES

An In-House Annuity is a retirement income plan designed by a life insurance company approved by the

National Insurance Commission (NAICOM). It enables individuals to convert accumulated savings into a guaranteed regular income for life.

This plan is usually available at ages 50, 55, 60, 65, or 70. It is specifically designed for business

owners, entrepreneurs, self-employed persons, and working-class individuals who wish to save

towards retirement.

TYPES OF IN-HOUSE ANNUITY

1. Immediate Annuity

This option is suitable for newly retired employees or self-employed individuals who convert a lumpsum deposit into an immediate annuity payment.

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2. Deferred Annuity

This is an annuity plan taken before retirement for the purpose of receiving regular income at a future

date, usually at retirement.

OPTIONS OF IN-HOUSE ANNUITY

1. Spouse Annuity Option: An annuity option that provides 75% of the income to the spouse

upon the death of the annuitant.

2. ANNUITY ESCALATION OPTIONS

Annuity escalation is an option in which the monthly payout increases annually by either 5% or 10%

and continues for the rest of the annuitant’s life.

3. “TIMES FIVE (5) OF ANNUAL PAYOUT” OPTION

This annuity option ensures that after annuity payments have commenced, the beneficiary receives a

lump sum equal to five (5) times the annual annuity at the point of death, together with any balance

arising from the guaranteed period. This amount becomes payable to the beneficiary upon the death of the annuitant.

GUARANTEED PERIOD OF 10 YEARS

This means that if the annuitant dies before the end of the 10-year guaranteed period, the remaining

annuity payments within that period are paid to the named beneficiary. After the guaranteed period,

annuity payments continue for as long as the annuitant is alive.

BENEFITS OF ANNUITY

• Provides life assurance cover for the named beneficiary
• If death occurs before the commencement of annuity payments, all contributions plus 3%

compound interest are paid to the beneficiaries

• Premiums paid are not taxable.
• Provides guaranteed income for life
• Ensures a steady and predictable source of income
• Enhances financial liquidity during retirement
• Pays income in multiples of the amount deposited over time
• Protects against rising living costs and declining income
• Eliminates exposure to market volatility
• Offers tax benefits, as premiums are generally tax-exempt