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Chuks Udo Okonta
The insurance industry would have earned more than the N726.2 billion it recorded in 2022, if all available opportunities were explored, of which deferred annuity is one.
Since part of pension business was removed from the insurance industry and its asset soared above N15 trillion, many insurers have lamented that the huge pension asset would have remained in the insurance sector, while forgetting that deferred annuity remains a portfolio in pension/retirement plan.
Some other insurers often hinged their argument on the compulsory status accorded Contributory Pension Scheme (CPS) for its success, but failed to remember that there are many other compulsory classes of insurance.
Aside, the compulsory status on the CPS, the National Pension Commission (PenCom) has driven the scheme through issuance of compliance letters to faithful employers. This singular act forces many employers seeking government contracts to comply with the CPS in ensuring their employees’ retirements are adequately provided for.
Coming to deferred annuity, which is almost similar to the Micro Pension Plan (MPP) and is not backed by compulsion, the insurance industry can drive the annuity plan starting from itself.
According to findings over 90 per cent of engaged insurance agents today have no structured retirement plan. These agents should be enrolled in deferred annuity.
Moreso, many insurers are engaged in voluntary contributions in the CPS, the industry should mandate its workforce to aside embracing voluntary contributions, to consider deferred annuity as another option for voluntary contributions towards retirement.
Inspenonline has at several fora, canvassed the need for the insurance industry to intensify efforts in marketing deferred annuity products, which is another tool for retirement planning.
It was a huge shock when this medium reported some months ago of an insurance chief executive officer who came to know the benefits of deferred annuity two years to his retirement.
This revealed the importance the sector accords the business.
Aside, that CEO, there are also many insurers, just like the uncovered insurance agents who work in the sector without structured retirement plan, even when deferred annuity product is sold in the sector.
A deferred annuity plan allows the insured to accumulate a significant amount of money as an annuity in exchange for a one-time or recurring payment. Such plans aid in saving money for retirement by creating a stable source of income. It is a popular long-term savings plan which provides guaranteed earnings, especially for senior citizens.
It is a type of insurance contract whose main aim is to provide stable and guaranteed earnings at a deferred date, usually after retirement. You can invest in a deferred annuity plan in one go or make small fixed recurring payments.
You will also receive a certain interest on the invested amount, which varies from one plan to another. The income stream generated from these annuity plans can be delayed at a later date as per your preference.
These annuity plans also provide an option for early withdrawal in cases of emergencies. However, you will have to pay fees and penalties for withdrawing from a particular annuity plan.
How Deferred Annuity Works
A deferred annuity plan eventually turns your premium deposits into a set number of payments at a later date. You can either invest a lump-sum amount in a deferred annuity plan or pay in recurring instalments.
The insurance company will invest the amount in different arenas as per the objectives of annuity plans. You can start receiving regular payments after a period of time. You can delay these payments until your retirement starts and enjoy regular earnings during that time.
Moreover, you can set the timeline for receiving these payments as per your requirements. For example, you can set a term for 15 years or the rest of your life. However, it must be noted that the longer the timeline for receiving these payments, the smaller amounts you will receive.
The insurance company offering deferred annuity plans may provide a specific return on the amount invested or guarantee a minimum pay-out to insured individuals. In addition, some insurance companies may also provide annuity plans where on death of the annuitant, annuity is paid to the spouse during his/her life time and purchase price is returned to the nominee after the death of the spouse. The treatment of the annuity plan depends on the annuity option exercised by the policyholder while buying the plan.
Benefits
* Surrender value.
The contributor can decided to stop the contribution and demand what has been contributed in line with rules in the policy.
* Choice of duration for contribution and retirement.
Deferred annuity gives the contributor the power to determine time for contribution and retirement.
* No will or letter of administration
Beneficiaries of the contributions, in case the annuitant dies do not need a will or letter of an administration to claim the contributions.
* Multiple pay-out options
There are different pay-out options available for your selection. You can choose to cover your or your dependent’s lifespan or both, as the case may be.
* Guaranteed retirement income
A deferred annuity plan helps you to build a retirement corpus that can financially secure the later stages of your and your dependent’s life. You can easily cover necessary medical expenses and enjoy a decent standard of living.
These plans are a great way of supplementing other retirement benefits, such as pensions. It also gives you peace of mind as you are confident of financial security after retirement.
* No maximum contribution
There is no restriction on the maximum contribution an individual can make to these plans. You can contribute as much as you want according to your financial capabilities. In this way, you can create a large corpus and receive higher income in future.
* Tax deferred gains
Deferred annuities helps you save on tax. The earnings from this tax savings account shall not be taxable till you start withdrawing them. If you invest money that has already been taxed, there will be no additional taxation on earnings.
* Determination of fund
Deferred annuity gives the contributor the power to determine targeted fund. The fund expected is worked out with the insurer from the on-set.
* Attached life or term assurance
The contributor has the leverage to buy life or term assurance to cover the period of contributions. In cast of death, beneficiaries would claim from the insurance/term assurance and the annuity contributions.
