Programmed Withdrawal vs Annuity in Nigeria: My Pension Story at 49

 

Introduction

For many Nigerian workers, retirement planning begins and ends with checking the balance in their Retirement Savings Account (RSA). We see the amount accumulated over the years and assume that it will be enough to support us when our salaries stop.

But there is very important question to ask: How much monthly income will that pension balance actually provide when I retire?

That question became personal to me when I decided to look more closely at my pension savings with Stanbic IBTC Pension.

 

The Day I Started Taking My Pension Seriously

Last year, I became concerned about my RSA balance. I was 49, living in Kuje, Abuja, and had spent about 18 years contributing to my retirement savings under Nigeria's Contributory Pension Scheme.

My contributions were 8% of my salary, while my employer contributed 10%. For years, I had continued making contributions without paying enough attention to the details of my pension statement.

Then, in December, I visited the PenCom office in Wuse Zone 4, Abuja, to obtain a copy of my statement.

During the visit, I was asked a question that made me think seriously about retirement:

"Oga, at 60, do you want programmed withdrawal or annuity?"

Until that moment, I had focused more on how much I had accumulated than on how I would use the money to support myself after retirement.

I realised that having a pension balance was only one part of the picture. I also needed to understand the options available to me, how monthly payments might be calculated and what could happen to my family if I died.

That experience led me to examine the differences between programmed withdrawal and annuity.

 

What Is Programmed Withdrawal?

Programmed withdrawal is a retirement payment arrangement under which an eligible retiree receives periodic pension payments from their Retirement Savings Account, subject to the applicable pension rules and calculation method.

In simple terms, your pension savings remain within the pension system, and your retirement income is calculated according to the applicable guidelines.

The amount you receive depends on factors such as your RSA balance, the approved calculation method and other relevant retirement details.

One reason some retirees may consider programmed withdrawal is the potential for a remaining RSA balance to be payable to eligible beneficiaries if the retiree dies, subject to applicable rules and claims procedures.

However, it is important not to assume that a particular balance will automatically be paid to a spouse or children without documentation. Beneficiary eligibility, the claim process and the circumstances of the death matter.

Before choosing this option, ask your Pension Fund Administrator (PFA) to explain how your monthly pension would be calculated and how any remaining balance would be handled.

 

What Is an Annuity?

An annuity is a retirement income arrangement purchased from an approved life insurance company under the applicable pension framework.

Instead of receiving retirement payments directly through programmed withdrawal, an eligible retiree uses the relevant portion of their retirement benefits to purchase an annuity that provides periodic income according to the contract.

Depending on the annuity product, payments may continue for the lifetime of the retiree. Some contracts also include a guaranteed payment period.

The main attraction is the potential for a predictable income stream throughout retirement, including if the retiree lives longer than expected.

Consider someone who retires at 60 and lives to 90. That person needs retirement income for another 30 years. If they live to 95 or 100, the period is even longer.

An appropriate lifetime annuity may help protect against the risk of outliving retirement savings, depending on its terms.

However, the contract matters. A guaranteed period, survivor benefits and any payments after the retiree's death depend on the particular annuity arrangement. It would be inaccurate to assume that every annuity automatically stops all payments to family members after a particular period.

Before committing, request a written explanation of the guaranteed period, death benefits, payment terms and any available options for your beneficiaries.

 

Programmed Withdrawal vs Annuity: What Is the Difference?

Both options are designed to provide retirement income, but they work differently.

Programmed withdrawal may appeal to retirees who want to retain their pension within the RSA arrangement, with payments calculated under the applicable pension rules and the possibility of a remaining balance being handled according to those rules.

 

Annuity may appeal to retirees who prioritise a contractual income stream, especially protection against the financial risk of living longer than expected.

Neither option should be selected based on assumptions alone.

The right decision depends on your RSA balance, expected retirement expenses, family responsibilities, other sources of income, health and longevity considerations, and the terms available to you.

Ask your PFA to provide an estimate of the monthly income under the applicable retirement options. Where an annuity quotation is available, compare its terms and payments with the programmed withdrawal estimate.

 

My Biggest Concern: Will My Pension Cover My Retirement Expenses?

When I considered retirement at 60, I began thinking about the years ahead without a regular salary.

I thought about rent in Lugbe, children's school fees, supporting my mother with medication in the village and the everyday expenses that continue even after employment ends.

These are real responsibilities. They do not disappear simply because someone retires.

My concern was that my accumulated RSA balance might not provide enough monthly income to meet all my needs.

That is why I believe retirement planning should go beyond looking at the gross balance on a pension statement.

You need to estimate your likely monthly expenses, compare them with your expected pension income and identify any shortfall.

For example, list your expected spending on housing, food, healthcare, transport, family support and utilities. Then compare that total with the monthly pension estimate provided by your PFA.

If there is a gap, consider how you might address it before retirement through additional savings, reducing future expenses or building other suitable sources of income.

Do not rely on an assumed percentage of your current salary as your retirement income without checking the actual figures.

Your pension balance matters, but the income it can provide relative to your expenses matters just as much.

 

Can You Withdraw 25% of Your Pension Savings Before Retirement?

Can You Withdraw 25% of Your Pension Savings Before Retirement?

Yes, eligible RSA holders may withdraw 25% of their pension savings before retirement, subject to PenCom rules and eligibility requirements.

Recently, there has been growing interest in the possibility of accessing 25% of pension savings through a Pension Fund Administrator (PFA). But it is important to understand that this is not a free withdrawal available to every RSA holder whenever they want it.

Under the applicable pension provisions, eligible workers who experience a temporary loss of employment may qualify to withdraw 25% of their Retirement Savings Account (RSA) balance if they meet the required conditions. PenCom's published reports explain that this provision applies to eligible individuals who have been unable to secure another job for at least four months after leaving employment. Read: PenCom's report on 25% RSA withdrawals

There is also a separate provision that allows eligible RSA holders to use up to 25% of their pension savings towards the equity contribution for a residential mortgage, subject to the applicable eligibility requirements. This is different from withdrawing money for general spending.

So, before assuming you can collect 25% of your pension, contact your PFA and explain your circumstances. Ask whether you qualify, what documents are required and what effect the withdrawal could have on your future retirement income.

Remember, money withdrawn from your pension today is money that may no longer be available to support you in retirement. Accessing it may be useful in qualifying circumstances, but the decision should be made with a clear understanding of the long-term consequences.

The lesson is simple: know your pension rights, confirm your eligibility and think carefully before reducing the savings intended to support you in retirement.

 

What Happens If You Die Before Retirement?

Another question I considered was what would happen if I died before reaching retirement age.

For workers covered by Nigeria's Contributory Pension Scheme, benefits may be payable to eligible beneficiaries in the event of death, subject to the applicable pension rules and claims requirements.

The process may require supporting documents, which can include a death certificate and other records depending on the circumstances and the claim being made.

This is something every worker should discuss with their PFA before a crisis occurs.

Make sure your beneficiary information is accurate and ask what your family would need to do to make a claim. Do not leave your spouse or children trying to understand the process without guidance.

It is also worth reviewing your wider family protection arrangements. Life insurance, where suitable and affordable, may provide additional financial protection. Estate planning can help clarify how assets should be managed and passed on.

These arrangements serve different purposes, so ask qualified professionals how they apply to your own circumstances.

 

Can You Combine Flexibility With Guaranteed Retirement Income?

After considering the options, I became interested in the idea of preserving flexibility while exploring ways to secure a more predictable income.

For example, a retiree might investigate programmed withdrawal and later consider whether purchasing an annuity is permitted and appropriate under the rules in force at that time.

However, you should not assume that every pension option can be reversed or changed whenever you wish. The rules, eligibility requirements, timing and procedures must be confirmed with PenCom, your PFA and, where relevant, the insurance provider.

Before making a decision, ask these questions:

1.    What retirement options am I eligible for?

2.    How much monthly income could I receive under each available option?

3.    Can I change my selected option later, and under what conditions?

4.    What happens to any remaining RSA balance if I die?

5.    What death benefits or guaranteed payment terms are available under an annuity quotation?

6.    What fees, charges and tax rules apply to my particular circumstances?

Get the answers in writing where possible. A major retirement decision deserves more than a brief conversation.

 

My Advice to Nigerian Workers Approaching Retirement

If you are 40, 45, 49 or older, do not wait until your retirement date to understand your pension.

Start by requesting your latest RSA statement from your PFA. Check your contribution history, confirm that the records are accurate and ask for an explanation of your projected retirement benefits.

Then prepare a realistic retirement budget.

Think about where you intend to live, whether you will still support children or other relatives, your healthcare needs and any outstanding financial commitments. Compare your estimated expenses with the retirement income you may receive.

Most importantly, do not choose between programmed withdrawal and annuity simply because a friend or colleague recommends one.

Your financial responsibilities and retirement goals may be different from theirs.

Ask your PFA for an explanation of the options available to you. If you are considering an annuity, request details from an appropriately approved insurance provider and read the contract carefully before making a decision.

 

Final Thoughts: Start Planning Before You Retire

My experience checking my pension details made me realise that retirement planning is not just about accumulating money. It is about understanding how that money may support you and your family after your working income stops.

Programmed withdrawal and annuity can serve different retirement needs. Understanding their features, limitations, payment terms and beneficiary provisions can help you ask better questions and make a more informed decision.

Do not wait until you are 60 to start asking how your pension will work.

 

Check your RSA statement. Estimate your retirement expenses. Ask your PFA for the figures. Understand your options before making a decision.

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Disclaimer: This article shares a personal account and general educational information. It is not individual financial, legal, tax or pension advice. Pension rules, eligibility, payment calculations and survivor benefits may depend on current regulations and individual circumstances. Confirm the details with PenCom, your PFA and any relevant approved insurance provider before making a retirement decision.