Question 1

What is the difference between annuity and programmed withdrawal?

Accepted Answer

Under PENCOM rules, at retirement you first take 25% of your RSA as a lump sum. With the remaining 75%, you choose either: (1) Annuity — you pay the 75% to a life insurance company which then pays you a fixed monthly income for life, regardless of how long you live; or (2) Programmed Withdrawal (PW) — your remaining RSA stays with your PFA and you receive monthly payments that deplete over time. Annuity removes longevity risk; PW offers flexibility and potential upside.

Question 2

What happens to annuity income after I die?

Accepted Answer

This depends on the annuity type purchased. Most Nigerian annuity products offer a "certain period" — typically 10 years — meaning that if you die within that period, payments continue to your named beneficiary for the remainder of the certain period. After the certain period, a standard life annuity pays nothing to heirs. Joint-life annuities continue payments to a surviving spouse, but at a lower monthly amount. Always read the annuity policy terms carefully.

Question 3

What happens to programmed withdrawal funds after I die?

Accepted Answer

Under PW, any remaining RSA balance at the time of death is paid to your named beneficiaries (next of kin) as a lump sum. This makes PW the better option for wealth transfer. However, if you outlive your PW balance, you may be left with no retirement income — which is why PENCOM requires that the withdrawal amount be calculated to last a minimum of 18 years.

Question 4

Can I switch between annuity and programmed withdrawal?

Accepted Answer

You can switch from Programmed Withdrawal to an Annuity at any time during retirement — simply use your remaining RSA balance to purchase an annuity. However, you cannot switch from an Annuity back to Programmed Withdrawal once the annuity has been purchased. Many retirees use PW first while younger and healthier, then switch to an annuity as they age and longevity risk increases.

Question 5

Which option is better?

Accepted Answer

There is no universally correct answer. Annuity is better if you live longer than average (eliminates the risk of running out), if you prefer income certainty, or if healthcare costs make budget predictability important. PW is better if you have dependants who would benefit from remaining funds, if you prefer flexibility, or if your spouse is younger and would benefit from a potential lump sum on your death. Many advisers suggest a hybrid approach: use PW initially and purchase an annuity at age 75–80 with whatever remains.

Annuity vs Programmed Withdrawal

Annuity

Programmed W.

How the Monthly Income Is Calculated

Frequently Asked Questions

What is the difference between annuity and programmed withdrawal?

What happens to annuity income after I die?

What happens to programmed withdrawal funds after I die?

Can I switch between annuity and programmed withdrawal?

Which option is better?

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