Annuity vs Programmed Withdrawal Pension

Retirement age is a time to rest and reap the fruits of one’s labor over the years. Gone are the years when a good number of retirees died waiting on the government for their benefits. With the privatization of the sector and introduction of the Contributory Pensions Scheme, retirement age can only get better. Meanwhile, as a new retiree, one dilemma you are likely to face is choosing between the two available retirement options – Annuity and Programmed Withdrawal. While the two options seem okay, it is advisable to go for what suits you more.

This post is an attempt to objectively review the available retirement options. Here, we aim to present a complex topic in the simplest possible terms. This we hope will help you make an informed decision as regards your future.

DISCLAIMER: This article is not sponsored or endorsed by any external party. It is written for informational purposes only. Jainda is not liable for any action or decision taken as a result of this post. If you are or know a retiree, who has any challenge with his pension, do well to contact us here. Our team of insurance and legal experts will surely be of help.

Meaning of Pension Terminologies

Before we go any further, here are some of the terms you should be familiar with. Please note that we will use the acronyms more often in the latter part of this article.

  • National Pension Commission (PENCOM):- The body empowered by law to regulate pension activities in Nigeria.
  • National Insurance Commission (NAICOM):- The body empowered by law to regulate insurance activities in Nigeria. It was established in 1997.
  • Pension Reform Act (PRA):- An Act of parliament that guides Pension activities within Nigeria. The law in operation was enacted in 2014 to replace the PRA 2004.
  • Pension Fund Administrator (PFA):- A company licensed by PENCOM to manage and invest pension funds in the employee’s RSA on his behalf.
  • Pension Fund Custodian(PFC):- PFCs receive and ensure the safekeeping of pension assets on behalf of the PFAs. They accept contributions, settle transactions and undertake activities relating to the administration of pension fund investment with the instructions of the PFA.
  • Retirement Savings Account (RSA):- An RSA to a retiree is more or less like a normal bank account to a bank customer. It is where a retiree’s retirement assets are held. It is domiciled at a PFC and controlled by a PFA.
  • Contributory Pension Scheme (CPS):- This scheme involves paying a portion of an employee’s wages into his RSA in view of his retirement. According to the PRA, both the employee and his employer must contribute a percentage (minimum 7.5% each) of his TOTAL monthly emoluments. This includes the employee’s basic salary and allowances.
  • Voluntary Contributions:- This is the pension contribution outside the mandatory contribution prescribed by PENCOM. Aside from the compulsory pension contributions, an individual could simply walk into a PFA to buy himself a plan or top up his RSA.
  • Expected Life-Span (ELS):- This is the estimated longevity of an individual. It is the period a person is predicted to live. ELS is calculated based on a number of factors like age, social status, et cetera.
  • Gratuity or Lump sum:- This is a percentage of the RSA that is paid to the retiree on retirement.
  • Mortality Table: This is a statistical table that illustrates how long people of different ages, social status, occupations and so on are expected to live.

Annuity vs Programmed Withdrawal Features

Nigeria’s Pension Reform Act provides for two principal retirement products; viz Annuity and Programmed Withdrawal. The act empowers every retiree to choose either of the options according to his personal preference.

Kindly note that a retiree who later changes his mind can move from PW to annuity, or from one PFA or insurance company to another. You may contact us here for any assistance, and we will be glad to help you free of any charge. 

Programmed Withdrawal

PW, as stated above, is one of the two options available to every pensioner. It is offered by licensed PFAs who undertake to pay the retiree a guaranteed sum (pension) over a fixed period, calculated based on the retiree’s expected life span. The amount payable is arrived at after deducting the one-time lump sum (gratuity) paid to the retiree. The RSA balance is spread over the ELS (oftentimes up to 20 years) and paid monthly or quarterly to the pensioner. Some of the key features of PW include:

  • Payments are only for a limited period. The retiree is paid from the balance of his RSA. Hence, payments cease once the balance is exhausted. In other words, the retiree bears the risk of longevity.
  • Interests may accrue to the retiree as returns on investment of the funds in the RSA. The PFA invests the funds on the pensioner’s behalf and charges a fair commission.
  • The retiree may choose to move from one PFA to another, or even to an annuity program.
  • Where the death of a retiree occurs at any time, the balance of the RSA is paid to the named beneficiary
  • Pension assets are held by a PFC.
  • A retiree who in due course secures another employment could choose to continue contributing to his RSA. That will be regarded as a VC.


Annuity, as prescribed in the PRA, is a life cover bought from an insurance company with the proceeds of a retiree’s RSA. Here, after the PFA pays the lump sum, the RSA balance is handed over to an insurance company who undertakes to pay the retiree a certain amount of pension for life. Some of its key features include:

  • First, the insurance company bears the risk of longevity as they undertake to pay the retiree for life.
  • Second, annuity makes provisions for a 10-year guarantee period. Hence, if a pensioner dies within the first ten years, the full balance of his RSA is paid to his beneficiary. However, if death occurs after ten years, nothing is paid.
  • While it is possible for a pensioner on Annuity to move from one insurance company to another, he cannot move back to PW.
  • The retiree’s funds attract no interest as the retiree is paid a fixed income for life.

Annuity vs Programmed Withdrawal, Which is Better?

As noted earlier, the law empowers every retiree to freely choose either of the available options. Determining which is better depends on individual peculiarities.

Let us start with a personal experience. Two of my close relatives retired from public service relatively early. They were both less than 60 at retirement. In my personal assessment, I can predict they may likely stay alive for the next 30 years because they are both engaged in some personal business ventures. Besides, their health conditions are perfect.

I once had the opportunity to advise one of them on which of the options to go for. By virtue of his funds being in the custody of a PFA, where pension payments have already commenced, you can guess which option he favored. Like any Nigerian, he would rather stick to the status quo than suffer any disruptions.

To understand better, I asked if he read the terms and conditions of the contract he endorsed with the PFA, which he answered in the affirmative. According to him, he was subtly made to believe he will receive pensions “for life”. However, when he confirmed that he will only receive pensions for about ten years, the world went upside-down.

Programmed Withdrawal is Great, but Annuity is Better

“Some pensioners under the Contributory Pension Scheme stopped earning monthly stipends some years after they retired because they exhausted the money in their Retirement Savings Accounts.

Findings revealed that the affected retirees’ accounts became empty some years after earning monthly pensions because they didn’t have enough pension savings as of the time they retired…” Culled from the Punch Newspaper. Nov 9, 2018

While we would like to be diplomatic, being as clear and concise as possible is our responsibility. Programmed withdrawal offers some wonderful goodies like returns on investment of the funds in the RSA, flexibility and a lot more.

However, after reviewing a few random cases, some of the reasons we prefer annuity to PW include:

  1. Annuity often pays a higher monthly pension than PW. We know of a few retirees whose monthly pensions increased by up to 10% once they moved to an annuity.
  2. Outliving your ELS spells doom in PW. With advancements in medical science, people may live longer than predicted. Since retirement age is a time to rest, why spend it worrying about what happens if you don’t die early enough.
  3. Most insurance companies offer some add-ons to their packages. Hence, retirees enjoy other insurance benefits like travel and medical cover while on annuity.


Every retiree deserves to know the full implications of the choices available to him. Retirement decisions are lifelong and should only be taken after a careful examination of all the facts, or with the advice of a professional.

Here, we have a team of professionals who are always available to help with your retirement needs. Send us a message today. You may leave a comment below to share your experiences. It could be of help to others.


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