ANNUITY (AP) VS PROGRAM WITHDRAWAL (PW)

The 2014 Pension Reform Act allows a retiree under the scheme to elect between sticking with a PFA’s Program Withdrawal or a Pencom Regulated Annuity from a Life Insurance company.

At retirement, the retiree gets guaranteed monthly or quarterly basis pensions. Below are the Similarities and Disparity between them.


APVS PW

Similarities: 
1. The two plans guarantees monthly or quarterly pension to retirees. 

2. The two plans are not Taxed.

3. The two plans are backed by the 2014 Pension Act and are overseen by both PenCom and NAICOM.


Disparity:


1. A retiree on PW can opt out and sign up for the Annuity plan from an Insurance company but a retiree who has opted for Annuity at the beginning cannot choose PW later on.

2. With the Annuity, if a retiree dies before the expiration of the minimum guaranteed period of 10 years, his or her beneficiary will receive the pension benefits up to the guaranteed period of 10 years from the start of the Annuity contract. But if the death occurs after the guaranteed period, no payment is made to the beneficiary. On the other hand, a retiree beneficiary under the PW will receive whatever balance that is left in the RSA of the deceased retiree irrespective of the year of death. 

3. A retiree that opted for the PW has the opportunity receive minimum pension provided he or she has satisfied the \requirements to receive minimum pension under the CPS. But a retiree who has opted for Annuity cannot receive guaranteed minimum pension. This is because guaranteed minimum pension is under the regulation and control of PenCom while the Annuity product is under the regulation of NAICOM.

4. A retiree on PW can have his or her monthly pension reviewed upward periodically in accordance with the directive of PenCom based on the fact that his or her RSA balance is also expected to grow as a result of profitable investment decisions being made continuously by the PFA on his or her behalf. On the other hand, Annuity payments are fixed and may not be reviewed upward.


5. Annuity payments are clearly higher than PW payments. This is understandable as Annuity product has a minimum guaranteed period while PW has no limit. 

6. A Retiree under the PW can move  his RSA balance to another PFA in accordance with the transfer window guidelines after one year. However, a retiree who has opted for Annuity can also move to another provider only after 2 years.

7. A retiree under the PW receives a periodic statement of account showing the balance in his or her RSA from the PFA but a retiree under the Annuity contract does not receive statement of account because the Annuity pool is not customized to an individual.

8. The Retiree bears the longevity risk in PW i.e. if the funds dwindle before death and a case of no fund occurs the Retiree bears the risk. This is though a rare event. But for Annuity the Life Insurer bears all the risks, So the funds are guaranteed for life.

In conclusion, both Annuity and PW allows a retiree to draw monthly pensions which can last up to the entire duration of the retiree existence. They also have some striking differences which should be considered before opting for either options.

My take? Annuity is the Better plan.

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