Breaking shackles of old age poverty with deferred annuity

Senior citizens without retirement benefits.

Poverty is a global menace which governments, organisations and individuals across the world are working assiduously to curb through different measures. Whilst efforts to eradicate this menace that reduces human dignity continue, strategic financial instruments are required to be leveraged by individuals to stay wealthy. Chuks Udo Okonta, in this report, writes on opportunities inherent in deferred annuity that could free people from old age poverty.

Poverty remains one of the major problems in Nigeria as available statistics revealed that over 133 million Nigerians are poor and deferred annuity provides a way of escape, especially for old people.

The poverty figure released by the National Bureau of Statistics (NBS), indicated that 63 per cent of the nation’s population, which is estimated to be above 200 million, are trapped in the web of poverty.

The NBS had in its ‘Nigeria Multidimensional Poverty Index’ said, over half of the population, who are poor, cook with dung, wood or charcoal, rather than cleaner energy.

Effects of poverty in Nigeria.

It added that, high deprivations are also apparent in sanitation, time to healthcare, food insecurity and housing.The report noted that multidimensional poverty is higher in rural areas, where 72 per cent of people are poor, compared to 42 per cent of people in urban areas.

Approximately, the bureau said, 70 per cent of Nigeria’s population live in rural areas, yet these areas are home to 80 per cent of poor people.

The report, which was the first poverty index survey published by the statistics bureau since 2010, noted that, 65 per cent of the poor (86 million people) live in the North, while 35 per cent (nearly 47 million) live in the South.

Senior citizens seeking better life.

Irrespective of how bad the situation painted by the NBS report may be, adopting a structured financial measure such as deferred annuity can help prevent more people from joining the league of the poor.

The need for deferred annuity has become necessary as available data from the National Pension Commission (PenCom) revealed that only 9.86 million out of the over 30 miiion workers in the formal sector and 89,327 out of the over 140 million informal sector workers had subscribed to Contributory Pension Scheme (CPS) and Micro Pension Plan (MPP) respectively.

The figure from PenCom showed that a total of 10.75 million out of the over 200 million Nigerians have structured retirement plan through Contributory Pension Scheme and micro pension plan.

A deferred annuity is a contract with an insurance company that promises to pay the owner a regular income, or a lump sum, at some future date.

Deferred annuities come in several different types—fixed, indexed, and variable—which determine how their rates of return are computed.

Withdrawals from a deferred annuity may be subject to surrender charges as well as a 10 per cent tax penalty if the owner is under age 59½.


How Deferred Annuity works.

There are three basic types of deferred annuities: fixed, indexed, and variable. As their name implies, fixed annuities promise a specific, guaranteed rate of return on the money in the account. Indexed annuities provide a return that is based on the performance of a particular market index.

The return on variable annuities is based on the performance of a portfolio of mutual funds, or sub-accounts, chosen by the annuity owner.

All three types of deferred annuities grow on a tax-deferred basis. Owners of these insurance contracts pay taxes only when they make withdrawals, take a lump sum, or begin receiving income from the account. At that point, the money they receive is taxed at their ordinary income tax rate.

The period when the investor is paying into the annuity is known as the accumulation phase (or savings phase). Once the investor elects to start receiving income, the payout phase (or income phase) begins. Many deferred annuities are structured to provide income for the rest of the owner’s life and sometimes for their spouse’s life as well.

Hence, before purchasing an annuity, buyers should make sure they have enough money in a liquid emergency fund.
Prospective buyers should also be aware that annuities often have high fees, compared with other types of retirement investments. Fees can also vary widely from one insurance company to another, so it pays to shop around.

Finally, deferred annuities often include a death benefit component. If the owner dies while the annuity is still in its accumulation phase, their heirs may receive some or all of the account’s value. If the annuity has entered the payout phase, however, the insurer may simply keep the remaining money unless the contract includes a provision to keep paying benefits to the owner’s heirs for a certain number of years.

Annuitants’ perspectives.

People who took wise steps to subscribe to annuity as safeguard for their future against old age poverty, have continued to testified on how their investments in annuity are impacting their lives.

Annuitants with AIICO Insurance Plc.

In an interview conducted by Inspenonline, some annuitants shared their experiences.

“I am Joseph Igebulem holding an annuity policy with AIICO and it has been seamlessly okay. For the past eight years, no flaws. I have even introduced annuity to my friends here in Lagos and Calabar. So, if I should award in terms percentages, AIICO’s annuity has met 99 per cent of my expectations. And again my payment is delivered as at when due. I am advising everyone and telling those on the verge of retirement now to go for annuity, because I trust it is a very good policy for retirement,” he said.

In a similar manner, Mrs. Udu Veronica Ugwumba, who retired from PHCN said, she bought AIICO annuity policy since 2015 as she eulogised AIICO’s exceptional service delivery, adding that she has no hesitation recommending annuity to everyone who may need.

To her, “my name is Mrs Udu Veronica Ugwumba. I worked with National Electric Power Authority, now PHCN Plc. I went into annuity on the 30th November 2015. It has been a smooth ride since I went into the policy I have never regretted it.

“There is confidence in annuity, it is reliable. I have been recommending it to people, I recommended it to my daughter, I recommended it to a co-worker when we were retired and so many other people. And even when I lost my mother in 2016, I had little or nothing for my own contribution, I had to run to my annuity provider and they helped, giving me upfront payment.

“Even after burying my mother, I applied for quarterly payment of my annuity and they did it for me. After that I applied again for monthly payment; they started again to pay me monthly. So annuity is a reliable retirement instrument.”

On her part, Mrs. Okikiade Clara Kunbi said: “I retired 2020, December, precisely and I subscribed to annuity in 2022. Ever since that time, I have been receiving my annuity regularly. By 13th I receive alert. But the one that surprised me most was before our last festival the company paid me ahead of time. So, my annuity provider is doing a very good job. Also they ensure that they meet their obligations to us as and when due. Actually I have introduced some people to annuity because of my experience with my provider.”

However, Philip Nnamdi Izundu noted that; “I worked with Union Bank of Nigeria, retired and I started the policy the policy in 2013. The experience has been very good in terms of punctuality. They never failed and I can say that they are sensitive enough. They have always paid ahead of time especially during festivals. Of course, my annuity provider has met my expectation. And without reservation I recommend annuity to those working and are to retire.”

Annuitants dancing at 2022 Heirs Life Insurance annuity party in Lagos.

John Oyeyemi, who subscribed to deferred annuity while he still working, said he hopes to contribute for a period of 20 years as he aims to retire at age 60. He noted that the plan has helped him to be financially discipline as he has to meet with the contributions quarterly.

Ope Esther, an annuitant pointed out that, “the interesting part of my experience in annuity is that I introduced some of my friends to annuity and we are all enjoying the service. As a pensioner, it gives me peace of mind with prompt annuity payment and my annuity provider is always available to attend to us. I will continue to introduce more retirees.”

NAICOM perspectives.

Aligning with Federal Government’s commitments to curb poverty, the insurance industry regulator – National Insurance Commission (NAICOM)-has continued to put in place measures to strengthen annuity operations. The commission had, at different fora, said, annuity remains one of the best ways out of old age poverty, hence, should be properly structured.

One of the means NAICOM believes should be taken in structuring annuity business is having a professional in-house actuaries that should oversee all activities of annuity.

To this end, the regulator had cautioned annuity providers that any of them without in-house actuaries would be denied the opportunity to underwrite annuity business.

Sunday Thomas

According to the Commissioner for Insurance, Sunday Thomas, NAICOM has taken steps to raise about 100 actuaries, noting that, the industry would soon get to the point where firms operating without in-house actuaries will be debarred from underwriting annuity business.

He noted that, due to the technical nature of annuity business, it requires experts with analytical minds, which actuaries fit in.

“Part of our plans is that within the next five years, we want to produce at least 100 Certified Actuarial Analyst and we will take responsibility for the commitment. We must analyse our job, role and the need to change our focus on how to develop the market and ensure compliance to regulatory policies .

“Part of the development is the human capital development, as the growing potential of the industry is built on the capacity to have the required capital that will drive it forward.

“The issue of measuring and taking necessary step for effective pricing has made the Actuarial profession to be more pertinent more than ever before. There is need to develop young professionals and give them a future in the insurance industry and we are determined to develop their potentials and make them relevance to the sector, ” he posited.

According to him, only a couple of the Insurance companies have an in-house actuaries and this is why the commission has intervened to stem the tide .

Thomas said, actuaries are needed to manage the annuity business which was becoming quite significance and almost accounting for 35 to 40 per cent in the insurance industry portfolio.

NAICOM had also said, a Life Insurance Company shall not be permitted to underwrite a new annuity policy until it produces satisfactory evidence of having corrected negative cash flow positions or injected the required mismatch capital.

Stating this in a Prudential Guidelines for Insurance Institutions in Nigeria, it added that, under the liability adequacy test, a life insurance company shall, by its in-house or external actuary, carry out a liability adequacy test of its annuity portfolio on a quarterly basis to show the net cash flows of its projected assets and liabilities which shall include the duration and convexity of the assets and liabilities and an estimate movement in the net cash flow for deviations in yields, mortality/longevity risks,

NAICOM noted that, life insurance company shall be required to correct negative cash flow positions and submit evidence of such within 30 days, otherwise, the company shall be required to hold capital equal to the negative cash flows as a mismatch capital to make up for the negative cash flow position in addition to the minimum regulatory capital.

Operators perspectives.

Managing Director/CEO, AIICO Insurance Plc, Babatunde Fajemirokun said, due to importance the firm places on annuity operations, the management of AIICO would continue to provide its customers, both existing and prospective, unwavering commitment to continue to deliver on its mission – creating the most compelling experience, offering best fit products and driving wholesome peace of mind.

AIICO MD Babatunde

Senior Manager, Business Development, AIICO Insurance, Victor Owotorose, who spoke on importance and benefits of annuity to policyholders, said annuity is an insurance contracts that promise to pay policyholders regular income immediately or in the future.

According to him, a deferred annuity has an accumulation phase followed by a disbursement (annuitisation) phase; while an immediate annuity converts a lump sum into cash flows from day one.

Owotorose said, annuity can be bought with either a lump sum or a series of payments contributed over time, adding that, annuities come in three main varieties—fixed, variable, and indexed—each with its own level of risk and payout potentials.

The income receive from an annuity, he said, is typically taxed at regular income tax rates which are usually lower unlike when calculated with long-term capital gains rates.

Owotorose defined annuity as a contract between “you and an insurance company in which you make a lump-sum payment or series of payments and, in return, receive regular disbursements, beginning either immediately or at some point in the future. The goal of an annuity is to provide a steady stream of income, typically during retirement.

“Many aspects of an annuity can be tailored to the specific needs of the buyer. In addition to choosing between a lump-sum payment or a series of payments to the insurer, you can choose when you want to annuitised your contributions—that is, start receiving payments. An annuity that begins paying out immediately is referred to as an immediate annuity, while one that starts at a predetermined date in the future is called a deferred annuity.”

“The duration of thei disbursements can also vary. You can choose to receive payments for a specific period of time, such as 25 years, or for the rest of your life. Of course, securing a lifetime of payments can lower the amount of each check, but it helps ensure that you don’t outlive your assets, which is one of the main selling points of annuities.

“Annuities come in three main varieties: Fixed, variable, and indexed. Each type has its own level of risk and payout potential. For any of these, it is often structured as a deferred annuity,” he explained.

Similarly, Managing Director/CEO, Heirs Life Assurance Limited, Niyi Onifade, whose firm recently delighted its annuitants in a party christened; ‘Enjoyment for Life’, appreciated the annuitants for entrusting their retirement days with the company and reiterated the firm’s commitment to always supporting and empowering retirees.


According to him “we are here because of you. You all are the celebrants today. We appreciate the opportunity to serve you. Rest assured that the company will continue to be a dependable partner all the way.”


Pulling people out of poverty, especially old age poverty, requires taking far reaching measures. This includes building a strong financial stream through articulated saving outlay.

Effects of poverty in Nigeria.

Deferred annuity, which helps nurture saving over a period of time, has continued to prevent people from joining the league of the poor and should be embrace by every wise individual who hopes to stay above poverty level at old age.

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