Annuity
Annuity is a product offered by Life Insurance Company. Annuity is a series of payment made to person for life.
Annuity pays retiree for life.
A retiree once transferred to Insurance cannot move back to Programmed withdrawal. However, he/she can move to another insurance company only after 2 years.
Retirement benefit is in a pool of annuity fund.
Under the annuity plan, the insurer performs its traditional role of risk bearing, protecting the retiree against both investment and longevity risks. Hence, the retiree is assured of his pension for as long as he lives. Furthermore, there is a 10 year guaranteed period within which the beneficiary’s interest is accommodated since they can inherit from the residue of the retirement savings.
Programmed Withdrawal
Programmed Withdrawal is a product offered to retirees by Pension Fund Administrators (PFAs). In addition to a calculated Lump sum, it provides retiree a guaranteed income on a monthly or quarterly basis throughout retirement life.
Programmed withdrawal does not pay for life.
Under programmed withdrawal, the retiree bears the risks and hence also enjoys whatever rewards there might be. The rewards could come directly in the form of periodic increment in the monthly pension payout, if investment returns are good. Also, a named beneficiary is entitled to the residue of the retirement funds at the death of the retiree. The risk of course is that these rewards are not automatic; they depend on how good investment returns turn out to be. If investment returns are poor, the retiree could actually run out of retirement income and face old age with no pensions at all. The Pension act provides for a minimum pension that is payable to the retiree under these circumstances.However, the modalities for this is still been worked out by the relevant authorities.
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