A Guide to Annuities
A Guide To Annuities
A Guide to Annuities
The social and economic changes we see are increasingly leading to a breakdown in the traditional systems that ensured security in old age.
WHY PLAN FOR RETIREMENT?
Kenya, like many other nations, is striving to develop effectively to a level similar to that of industrialized countries through capitalism; an economic system driven by private business ownership. This has led to significant changes in our social and economic lifestyles; we have had to move away from a traditional lifestyle to a modern one driven by the need to increase wealth. One area of life that has changed drastically is social security, especially the guarantee of being free from poverty in old age. In the traditional African society, social security systems were assured; social norms and practices ensured that the elderly were taken care of by younger members of the society. It is therefore a personal responsibility to ensure that you have planned for your retirement life to avoid the “Old Age Trap”.
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A Guide to Annuities
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A Guide to Annuities
You can’t work forever.
Some people think they can keep working until death, but is that really realistic? Health problems is the number one reason people retire early, and we are all more vulnerable as we age. When you’re young and healthy, you might think you can work forever, but spend more time with older people and this myth will be dispelled pretty quickly. This is why it is prudent to plan for retirement early enough.
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There are three types of retirement saving plans namely:
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Government Sponsored Plans: This is through the National Social Security Fund. Contribution is compulsory for employers and employees. However, the benefits paid out are often not enough to provide for retirement. Employer Sponsored Plans: These schemes are formed by the employers for the benefit of their employees. It is not compulsory for employers to form pension schemes. Many employers in Kenya have not set up retirement schemes meaning that their employees have to plan for retirement saving themselves. Individual Pension Plans: Employed people who are not in an employer sponsored scheme as well as self-employed people can join an Individual Pension Plan.
A Guide to Annuities
With life expectancy increasing each year, receiving retirement income for as long as you live is an important consideration. An annuity gives you the valuable benefit of a lifetime retirement income.
HOW MUCH MONEY DO I NEED FOR RETIREMENT?
In general, a retired person needs approximately 60% of their last salary per month to maintain the existing standard of living during retirement. The Employees Retirement Benefits Fund can be an important source of retirement income but it may not be enough to finance your total retirement needs. A survey by RBA showed that majority of contributors spent all their savings within three years of withdrawing their pension funds after retirement. One way of avoiding this, is by using annuities to provide you with a guaranteed stream of income for as long as you live.
60%
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A Guide to Annuities
WHAT HAPPENS WHEN A MEMBER OF A PENSION SCHEME RETIRES? This depends on the type of scheme. If it is a pension scheme, one is allowed to take 1/3rd of the Total Pension Fund as cash (after taxes have been deducted). The remaining 2/3rds of the Total Pension Fund is converted into a monthly pension which is paid to you monthly, quarterly, half-yearly or annually until death. In Defined Contribution Schemes, a member is required to purchase an annuity; after retirement, the member receives a monthly payment for as long as they live. In a Provident Scheme a member is allowed to withdraw their entire retirement fund once they attain the retirement age.
HOW ARE RETIREMENT BENEFITS PAID? The options available for payment of retirement benefits are: 1. Payment of pension direct from the retirement scheme fund The trustees of a pension scheme may: • Pay out a monthly pension deducted from the pension fund • Debit the fund with full purchase price and invest the same with a bank and pay benefits from the account.
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Under this arrangement the trustees are in charge of the investments, investment policy and management of assets relating to the retired employee and also carry the risk in case the fund set aside gets depleted while the retiree is still alive. 2. Purchace an annuity policy from an insurance company The retiree can purchace an annuity plan from an insurance company. This enables you to have a guarateed income for as long as you live
WHAT IS AN ANNUITY AND WHY DO I NEED ONE? An annuity is a contract in which an insurance company agrees to pay you a stream of income for life, in exchange for a lump sum payment (also called a premium contribution). The insurance company converts the lump sum that you have into a lifetime income, removing the uncertainty and problems that you may face should your financial resources run out while you still live. You can also buy an annuity plan that guarantees income for your loved ones after you die. You can buy annuities from any life insurance company which offers annuity products. To buy an annuity plan, you pay a lump sum premium to an insurance company just before you retire. Alternatively, you can make periodic premium payments until your selected retirement age. Once you retire, the insurance company will pay you a monthly income for the rest of your life.
A Guide to Annuities
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A Guide to Annuities
The common types of annuity plans are:
WHAT ARE THE TYPES OF ANNUITIES?
Immediate annuity In this annuity, the income payments begin within 12 months after you buy the annuity. This is a suitable annuity for those who are about to retire or have already retired. The premium is paid as a lump sum at the time of purchase. Immediate annuities help to maximize and protect income for the rest of your life. In return for your contribution, the insurance company provides you a guaranteed pension-like income for the rest of your life or for a specified period of time, whichever is longer.
WHAT ARE THE TYPES OF ANNUITIES?
Deferred annuity For people who would like a guaranteed income, but do not need to start receiving it right away, there is another type of annuity known as a deferred income annuity that can provide guaranteed income at a future date. The income payments begin more than 12 months after you buy the annuity. You may buy this type of annuity at any time during your working years. The premium can be paid as a lump sum, which will be left to accumulate with the insurance company, or you can make a series of periodic payments until your retirement.
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A Guide to Annuities
Example: At the age of say 30, you can purchase a deferred annuity that will begin paying at age 55. You can choose to either pay a lump sum premium at 30 or make yearly premium payments until you are 54. The lump sum premium paid at age 30 will be smaller compared with what you would have to pay if you purchased an immediate annuity at age 54. This is because the premium paid at age 30 will be invested by the insurance company over a longer period of time. Deferred annuities can be an effective way to maximize future income because the longer you wait to start to receive income payments, the higher that income will be.
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A Guide to Annuities
CHOOSING THE RIGHT ANNUITY
The type of annuity you choose and its benefits will determine the amount of income you will receive during retirement. It is important to check all the options offered by various insurance companies first and then buy the annuity plan that best suits your needs.
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The amount of income payment you will receive will depend on:
You can usually choose to have your income paid every month, every three months, every six months or once a year.
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The amount you pay to purchase the annuity
ii) Your age when you purchase the annuity and your gender iii) The benefits options you choose
A Guide to Annuities
WHAT IS A GUARANTEED PERIOD OF PAYMENT?
An annuity contract may grant a guaranteed period of payment, perhaps five, ten or fifteen years where a specific payment amount is assured, whether the annuitant survives this period or not. Sometimes, if the annuitant dies during the guaranteed period, the balance of the guaranteed payments is paid immediately instead of being paid on the periodic due dates over the remainder of the period of the guarantee.
CHOOSING THE RIGHT ANNUITY Different benefit options 1 2
Annuity without guaranteed period – pays a fixed regular income for as long as you live. Annuity with a guaranteed period – pays a fixed regular income for the rest of your life, or for the guaranteed period say 10 years whichever is longer.
For example: A person purchases an annuity with a guaranteed period of 10 years. If he dies after 6 years, the annuity payments will continue to be paid to his beneficiary for the remaining 4 years. If he outlives the guaranteed period of 10 years, he will continue to receive the income payment for as long as he lives. 3
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Increasing annuity – pays an income which increases each year at a specified rate to partially protect your income from inflation, for the rest of your life. The starting income for an increasing annuity is normally lower, but it will provide you with better income some years later in your retirement period. Joint-life annuity – pays an income for the rest of your life, and then it continues to pay the income to your spouse for the rest of his/her life, after your demise. However, income to your partner may be for a reduced amount.
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A Guide to Annuities
HOW ARE ANNUITIES PRICED? The factors affecting the pricing of an annuity include: • Mortality (Survival) • Investment return • Expenses
SAVING FOR AN ANNUITY
You may need to have a savings arrangement that enables you to buy an immediate annuity once you retire. Alternatively, if you want to pay a smaller premium, you may consider buying a deferred annuity, where you pay premiums earlier in your life which are then invested by the insurance company to accumulate the amount you will need for your retirement income.
Estimating the amount payable Annuities are priced assuming that they will pay a specified annuity benefit e.g. Kshs 1000 per annum. This information is then used to price annuities of different amounts. Example: To purchase an annual annuity of Kshs 107.28, payable monthly in advance, guaranteed for 5 years at 10% requires a lump sum premium contribution of Kshs 1,000 at age 60 years. This can be used to calculate annuity amount for any purchase price. Women have a higher life expectancy than men and therefore annuity rates for women are lower.
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A Guide to Annuities
WHO IS WHO IN AN ANNUITY? The following are the parties involved in an annuity contract:
Insurance Company
Owner
Issues the contract, provides contract information, allocates the money as instructed by the owner and is responsible for the guarantees.
Makes the decisions about the annuity, such as how much money to invest and how it should be allocated. The owner also names the beneficiaries.
Annuitant
Beneficiary
The owner and the annuitant may or may not be the same person. Either way, it’s the annuitant’s life expectancy that is used to set the amount of future annuity income.
The beneficiary is the person who has the right to receive the death benefit if the owner or annuitant dies before income payouts begin or before the guaranteed period of payment ends.
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A Guide to Annuities
WHICH COMPANIES OFFER ANNUITIES?
NAME OF COMPANY
PHYSICAL ADDRESS
TEL NO. (020)
EMAIL ADDRESS
APA Life Insurance Ltd
Apollo Center, Off Ring Road. P.O.Box 30389-00100 Westland, Nairobi.
3641000
[email protected]
Barclays Life Assurance Kenya Limited
Westlands Office Park, Off Waiyaki Way, Accacia Building, 3rd Floor, Nairobi
+254 700 590 039
[email protected]
Britam
Britam Center Mara/Ragati Road. P.O.Box 30375-00100 Nairobi.
2833000
[email protected]
Capex Life Assurance Company Ltd
5th avenue Office Suites, Ngong Road, Box 12043-00400, Nairobi
2712384/5
[email protected]
CIC Life Assurance Company Ltd
CIC Plaza, Mara Road. P.O.Box 5948500100, Nairobi
2823000
[email protected]
Corporate Insurance Company Ltd
Corporate Place, P.O.box 34172 Kiambere Road, Nairobi, Kenya
2717617
[email protected]
First Assurance Company Ltd
First assurance hse, Gitanga Rd. P.O.Box 30064-00100 nairobi
2692250
[email protected]
Geminia Insurance Company Ltd
Geminia Insurance Plaza, Kilimanjaro Avenue, P.O Box 61316-00200, Nairobi
2782000
[email protected]
ICEA LION Life Assurance Co.Ltd
ICEA LION Center, Riverside Park, Chiromo Road. P.O.Box 46143-00100 Nairobi.
2750000
[email protected]
Jubilee Insurance Company Ltd
Jubilee insurance house, wabera street. P.O.Box 30376-00100 Nairobi.
3281000
[email protected]
Kenindia Assurance Company Ltd
Kenindia house, Loita Street. P.O. Box 44372-00100 G.P.O Nairobi.
2214439
[email protected]
Kenya Alliance Insurance Company Ltd
Chester Hse, Koinange street. P.O.Box 30170-00100 GPO, Nairobi.
2253900
[email protected]
Kenya Orient Insurance Company Limited
Capital Hill Towers, 6Th Floor Cathedral Road, Nairobi P. O. Box 34530 - 00100 Nairobi
2728603/4
[email protected]
Liberty Life Assurance Ltd
Liberty Hse, Mamlaka Rd. P.O.Box 3036400100 nairobi, Kenya.
2866000
[email protected]
Madison Insurance Company Ltd
Madison Insurance Hse, Upper hill Close. P.O.Box 47382-00100, Nairobi.
2864000
[email protected]
Metropolitan Cannon Life Assurance Company Ltd
Gateway business park, Mombasa Road. P.O.Box 30216-00100 Nairobi
2216602
[email protected]
Monarch Insurance Company Ltd
Monarch hse, 664 ole Nguruone Avenue. P.O.Box 44003-00100 GPO Nairobi, Kenya.
4292000
[email protected]
Old mutual Life Assurance Company ltd
Old mutual Building, Corner hse Mara/ hospital Road. P.O.Box 30059-00100, Nairobi.
2829000
[email protected]
Pan Africa life Assurance Company Ltd
Pan-African Hse, Kenyatta Avenue. P.O.Box 44041-00100 Nairobi.
2247600
customerservice@pan-africa. com
Pioneer Life Assurance Company Ltd
Pioneer Hse, Moi Avenue. P.O.Box 203300100 Nairobi
2220814/5
[email protected]
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A Guide to Annuities
NAME OF COMPANY
PHYSICAL ADDRESS
TEL NO. (020)
EMAIL ADDRESS
Prudential Assurance Company Ltd
5th Ngong avenue Off Ngong road. P.O.Box 25093-00100 Nairobi, Kenya.
2712591/2/3/6
[email protected]
Saham Assurance Company Ltd
Ecobank towers,Muindi Mbingu street. P.O.Box 20680-00200 City square
2218244
[email protected]
Takaful Insurance of Africa Limited
CIC Plaza, 3Rd Floor, Mara Road, Upper Hill P. O. Box 1811-00100, Nairobi
254 (20) 2725134/5
[email protected]
UAP Life Assurance Company Ltd
UAP insurance company Limited Bishop Gardens towers, Bishop Road. P.O.Box 43013-00100 Nairobi, Kenya
2850000
[email protected]
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A Guide to Annuities
Association of Kenya Insurers AKI Centre, Mimosa Road, Muchai Drive, Off Ngong Rd P.O. Box 45338-00100 Nairobi, Kenya Tel: +254 20 2731330-3, 2630295 Mobile: +254 722 204 149, 733 610 325 Email:
[email protected] Website: www.akinsure.com
