UNIVERSITY OF NAIROBI
PENSION SCHEME
MEMBERS’ EDUCATION
ANNUITY PRESENTATION
BY
INSURANCE COMPANY OF EAST AFRICA LTD.
Date: 8TH MAY, 2008
1
INSURANCE COMPANY OF
EAST AFRICA LIMITED
ICEA BUILDING
BRANCHES
KENYATTA AVENUE
MOMBASA
P. O. BOX 46143
KISUMU
Tel: 2221652, 340365
NAKURU
Email: life@icea.co.ke
NAIROBI
NYERI
ELDORET &
KAMPALA
Web Site: http://www.icea.co.ke
2
PLANNING FOR RETIREMENT
 When do we start planning?
NOW!!!
 Do we really plan?
 What types of planning?
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TYPES OF PLANNING
 Psychological Planning
 Financial Planning
 Social planning
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Financial Management
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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
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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.
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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.
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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”
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FINANCIAL PLANNING FOR
RETIREMENT
 ADEQUACY OF BENEFITS
Solution : Additional Voluntary
Contribution.
 SAFETY OF BENEFITS
Solution : Annuity
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ADDITIONAL VOLUNTARY
CONTRIBUTIONS CONT/…
ILLUSTRATION OF BENEFITS
 BASIC ASSUMPTIONS
a) SALARY ESCALATION
5%
b) AVERAGE INTEREST RATE 8%
c) NORMAL RETIREMENT AGE 55 YEARS
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ILLUSTRATION ON AVC
(without avc)








AGE (YEARS)
MONTHLY SALARY
CONTRIBUTIONS
NRA
FUND AT RETIREMENT
PENSION AT RET.
SALARY AT RET.
Pensions as % of salary
35
25,000
EE 09% ER 12%
55 YEARS
6,601,554
730,462 P.A.
1,084,958 P.A.
67.35%
12
ILLUSTRATION ON
AVC( with 5% avc)








AGE (YEARS)
MONTHLY SALARY
CONTRIBUTIONS
NRA
FUND AT RETIREMENT
PENSION AT RET.
SALARY AT RET.
Pensions as % of salary
35
25,000
EE 09% ER 12%
55 YEARS
8,173,352
904,381 P.A.
1,084.958 P.A.
83.35%
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ANNUITIES
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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.
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TYPES OF ANNUITIES
 There are three major types of
annuities namely:
1. Deferred Annuity
2. Guaranteed Annuities
3. Temporary Annuities.
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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
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GUARANTEED ANNUITIES
1. SINGLE LIFE IMMEDIATE
ANNUITY.
2. JOINT LIFE AND LAST SURVIVOR
ANNUITY
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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.
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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
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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.
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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.
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TYPES OF TEMPORARY ANNUITIES

Annuity Certain
 Widow/er’s pension
 Orphan’s Pension
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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
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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.
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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.
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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.
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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
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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.
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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
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CONT’D ANNUITY PURCHASE ILLUSTRATED
Joint Life Last Survivor annuity,5%Esc,5yr
Gtd.Reduction Factor:Nil
Kshs.
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
8,000,000
9,000,000
10,000,000
Kshs
6,065pm
12,130pm
18,195pm
24,264pm
30,323pm
36,387pm
42,452pm
48,516pm
54,581pm
60,645pm
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HOW MUCH DO YOU NEED TO RETIRE?
1.
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).
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HOW MUCH DO YOU NEED TO RETIRE?
1.
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.
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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.
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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.
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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
20
30
40
10%
17%
29%
50
69%
Age 55
Age 50
15%
24%
48%
21%
37%
86%
167%
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THANK YOU FOR YOUR TIME
QUESTIONS??!
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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
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