Annuity vs Programmed Withdrawal

Compare Nigeria's two PENCOM retirement income options — fixed annuity versus programmed withdrawal from your RSA — side by side.

RSA Balance at Retirement

₦

500,000200,000,000

Retirement Age

years

50 yrs65 yrs

Life Expectancy

years

65 yrs90 yrs

Annuity Rate (from insurer)

2%12%

PW Investment Return (RSA fund)

5%20%

25% Lump Sum (taken first, both options)

₦1,250,000

Remaining corpus invested: ₦3,750,000

🏦

Annuity

₦26,866

per month, for life

Rate used6% p.a.

Income durationFor life

Funds to heirsNone (after period)

📈

Programmed W.

Better

₦36,188

per month (20 yrs)

Fund return10% p.a.

Duration planned20 years

Funds to heirsBalance remaining

Tip: You are not locked in at retirement. Many Nigerians use Programmed Withdrawal initially for flexibility, then switch to an Annuity when they are older and longevity risk becomes more significant.

Disclaimer

This calculator is for educational and illustrative purposes only. It does not constitute financial, investment, or tax advice. Results are estimates based on the inputs you provide and may not reflect actual returns. Consult a qualified financial advisor before making any investment decisions.

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How the Monthly Income Is Calculated

Monthly Income = PV × r / (1 − (1 + r)^−n)

Where:

PV75% of RSA balance (corpus after 25% lump sum is taken)

rMonthly rate = annual rate ÷ 12 ÷ 100

nTotal months = (life expectancy − retirement age) × 12

Annuity rateRate offered by the life insurance company (varies by insurer)

PW returnExpected annual return on RSA funds managed by your PFA

Disclaimer: Results are illustrative only. Actual annuity rates depend on the insurer, your age, and market conditions at retirement. Programmed Withdrawal returns depend on your PFA's fund performance. This is not financial advice — consult a PENCOM-registered retirement benefits adviser before making a retirement income decision.

Frequently Asked Questions

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.

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.

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.

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.

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.