UNIVERSITY OF NAIROBI PENSION SCHEME MEMBERS’ EDUCATION ANNUITY PRESENTATION BY INSURANCE COMPANY OF EAST AFRICA LTD. Date: 8TH MAY, 2008
INSURANCE COMPANY OF EAST AFRICA LIMITED BRANCHES MOMBASA KISUMU NAKURU NYERI ELDORET & KAMPALA ICEA BUILDING KENYATTA AVENUE P. O. BOX 46143 Tel: 2221652, 340365 Email: firstname.lastname@example.org NAIROBI Web Site: http://www.icea.co.ke
PLANNING FOR RETIREMENT • When do we start planning? NOW!!! • Do we really plan? • What types of planning?
TYPES OF PLANNING • Psychological Planning • Financial Planning • Social planning
Financial Principles • Financial principles of retirement funds have similarities to other aspects, including businesses and individuals. • For any business/individual to survive, it/he/she must strive at all times: • To maintain a sound cash flow to ensure there are always sufficient funds to make payouts when due • To remain solvent by ensuring that the velue of its assets exceed liabilities or what is owned is more valuable than what is owed. • The business principles are equally important to individuals even though different in the way of
Key Financial Principles • For any individual to survive, it/he/she must strive at all times: • To maintain sufficient liquidity-cash in pocket/wallet • To remain solvent – able to pay debts. • Plus several other objectives • Buy the family house and the retirement farm • Pay for children’s education • Ensure day to day living costs are met • Pay the landlord, Telkom, KPLC, Cell Phones, Medical, etc • Meet extended family’s financial obligations • Pay for a holiday • Update mobile phone, clothes, car, shoes, tie, etc • Plus many, many, many others.
Financial Planning • Adequacy of the funds at retirement Replacement ratio at least of 75% • Security of the income Take risk free annuity with a life office • Choose a stable Partners in Business ICEA is the solution.
Psychological Planning • Positive Mental attitude towards retirement “Retirement is not a ticket to see your creator” • Good health “Maintain good health, live responsibly” • Time management “Avoid loneliness and avoid causing loneliness”
FINANCIAL PLANNING FOR RETIREMENT • ADEQUACY OF BENEFITS Solution : Additional Voluntary Contribution. • SAFETY OF BENEFITS Solution : Annuity
ADDITIONAL VOLUNTARY CONTRIBUTIONS CONT/… ILLUSTRATION OF BENEFITS • BASIC ASSUMPTIONS • SALARY ESCALATION 5% • AVERAGE INTEREST RATE 8% • NORMAL RETIREMENT AGE 55 YEARS
ILLUSTRATION ON AVC(without avc) • AGE (YEARS) 35 • MONTHLY SALARY 25,000 • CONTRIBUTIONS EE 09% ER 12% • NRA 55 YEARS • FUND AT RETIREMENT 6,601,554 • PENSION AT RET. 730,462 P.A. • SALARY AT RET. 1,084,958 P.A. • Pensions as % of salary 67.35%
ILLUSTRATION ON AVC( with 5% avc) • AGE (YEARS) 35 • MONTHLY SALARY 25,000 • CONTRIBUTIONS EE 09% ER 12% • NRA 55 YEARS • FUND AT RETIREMENT 8,173,352 • PENSION AT RET. 904,381 P.A. • SALARY AT RET. 1,084.958 P.A. • Pensions as % of salary 83.35%
ANNUITY An annuity is an arrangement whereby an Insurance Company, in exchange for a purchase price/money, enters into a contract to pay a set amount of money (the annuity) while the annuitant is still alive. • This is the most prudent way to invest retirement benefits. • It secures the annuitant’s life long income. • Annuitants can be paid in any part of the world.
TYPES OF ANNUITIES • There are three major types of annuities namely: 1. Deferred Annuity 2. Guaranteed Annuities 3. Temporary Annuities.
DEFERRED ANNUITY • This is a contract that provides for the commencement of periodical payments (Guaranteed or Temporary Annuity) at some future date. • If the Annuitant dies within the deferred period, the company refunds the purchase price/money with interest at a predetermined rate
GUARANTEED ANNUITIES • SINGLE LIFE IMMEDIATE ANNUITY. 2. JOINT LIFE AND LAST SURVIVOR ANNUITY
MAJOR TYPES OF GUARANTEED ANNUITIES Single Life Immediate Annuity This contract provides, in return for a single premium, an annual payment starting immediately and continuing for the rest of the life of the annuitant. These contracts are often purchased by retired people who want an income that is guaranteed to last for the rest of their lives, no matter how long (short) that may be.
MAJOR TYPES OF GUARANTEED ANNUITIES Joint Life Last Survivor Annuity • This is the most advisable option used to provide retirement income for a married couple, since a single life immediate annuity ceases if the annuitant dies first, leaving the spouse with no source of income. • This contract pays an annuity for the joint life times of the two annuitants. Payment usually continues in full after the first death, but sometimes reduce by, say one-third, one-half or even one-fifth
MAJOR TYPES OF GUARANTEED ANNUITIES Joint Life Last Survivor Annuity The factors considered in the purchase of these contracts are ages of both lives (man & woman), the guarantee period and the chosen reduction factor. • If both lives die before the expiry of the guarantee period, the balance of the guaranteed installments will be paid to the couples next of kin or nominated beneficiaries.
TEMPORARY ANNUITIES These are annuity contracts that cease payments on the occurrence of a certain named event in the life of the Annuitant other than death e.g. re-marriage or attainment of a certain age or expiry of a specified term.
TYPES OF TEMPORARY ANNUITIES • Annuity Certain • Widow/er’s pension • Orphan’s Pension
ANNUITY CERTAIN • This arrangement secures payment for a specified period regardless of whether the Annuitant survives. If the Annuitant dies before the expiry of the contract’s term, the remaining periodical payments are made to the next of Kin
WIDOW/ER’S PENSION • Conventionally these contracts contain a provision that the periodical payments will cease on death or earlier on re-marriage of the Annuitant. The main factors being considered in the purchase of these contracts are the gender/sex and age of the widow/er.
ORPHAN’S PENSION • This contract provides that the periodical payments will cease on attainment of a certain age or earlier on death of the orphan. The main factor considered in buying this product is the number of years to the age at which payments will cease.
HOW MUCH WILL YOU GET FROM YOUR IMMEDIATE ANNUITY? • The amount of annuity obtained depends on the amount you contribute, your age, and the interest rate environment at the time of purchase.
ADVANTAGES OF ANNUITIES • Annuities can provide retirees with a means to a stable and dependable financial security in retirement. • Annuities can reduce the level of stress and anxiety associated with lack of adequate income in retirement • Annuities can mitigate against the adverse effects of failed business projects which often lead to losses of retirement savings • Annuities reduce the possibility that a retiree will be rendered destitute in retirement and be forced to have to depend on relatives for support during ones retirement.
DISADVANTAGES OF ANNUITIES • The level of annuity that one may be able to purchase at retirement may be so low that it cannot meet their legitimate needs in retirement. • Once an Annuities is in payment the decision of purchase cannot be rescinded and one cannot opt out.
ANNUITY PURCHASE ILLUSTRATED • Single annuity,5%Esc,5yr Guarantee Kshs. Male Female 1,000,000 7,455pm 6,712pm 2,000,000 14,910pm 13,423pm 3,000,000 22,365pm 20,135pm 4,000,000 29,820pm 26,847pm 5,000,000 37,275pm 33,558pm 6,000,000 44,730pm 40,270pm 7,000,000 52,185pm 46,982pm 8,000,000 59,640pm 53,693pm 9,000,000 67,095pm 60,405pm 10,000,000 74,550pm 67,117pm
CONT’D ANNUITY PURCHASE ILLUSTRATED Joint Life Last Survivor annuity,5%Esc,5yr Gtd.Reduction Factor:Nil Kshs. Kshs 1,000,000 6,065pm 2,000,000 12,130pm 3,000,000 18,195pm 4,000,000 24,264pm 5,000,000 30,323pm 6,000,000 36,387pm 7,000,000 42,452pm 8,000,000 48,516pm 9,000,000 54,581pm 10,000,000 60,645pm
HOW MUCH DO YOU NEED TO RETIRE? • What sort of retirement income should you be targeting? As a start, a target retirement income should probably be 75% of your retirement salary. The 25% reduction allows for the likely fewer expenses in retirement than whilst working, preferential tax treatment as a pensioner, and the fact that you no longer need to save for a pension (at least).
HOW MUCH DO YOU NEED TO RETIRE? • What sort of retirement income should you be targeting? How much money do you need at retirement to secure an income of 75% of final salary? It is important to appreciate the impact on your retirement benefit of the timing of retirement. If you retire early, you will need more capital since you will be expected to receive a pension for a longer period than if you had retired later. Also, you will have less time to accumulate your retirement capital. In addition to the desired 75% of salary benefit in retirement, you may also want your retirement income to increase every year to keep pace with inflation and an income for your spouse upon your death in retirement.
WHY BUY ANNUITY FROM ICEA? ICEA’s Strength:- • 4 billion annuity reserve fund. • Gross Annual premium of over Kshs.3 billion. • Pension Assets Exceeding Kshs 10.2 billion. • Double (AA) Rated Company. • Market Leader in Employee Benefits, Pensions and Annuities. • Highly Customized and Computerized Pension System.
ANNUITY PAYMENTS • Most cases are paid monthly. • Electronic Funds Transfer (EFT) • Payment by 25th of each month. • We are able to transmit payments countrywide/worldwide and in time.
HOW MUCH DO YOU NEED TO RETIRE? What regular contributions do I need to make? The following table shows how much you should put aside to get a desireble level of annuity, taking into account when you started contributing. Start age Age 60 Age 55 Age 50 • 10% 15% 21% • 17% 24% 37% 40 29% 48% 86% 50 69% 167%
THANK YOU FOR YOUR TIME QUESTIONS??!
INVESTMENT REPORTS The End PRESENTED BY: JANE JUMA (MRS) Insurance Company of East Africa Limited P. O. Box 46143, Nairobi, Kenya Tel: 340365/6, 2221652, 2224766 Web site: http://www.icea.co.ke