Annuities
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What is an Annuity?
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A standard annuity is an insurance contract whereby an insurance company promises to make a regular payment, mostly monthly, in exchange for your pension fund.
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What determines the amount of monthly payment?
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The following factors are taken into account in arriving at the regular payments to you
Your current age.
Your gender.
For a joint life annuity, the number of lives and their ages.
Period/term of annuity i.e. life or a fixed term (say 5, 10 or 15 years).
Your pension fund or purchase price.
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How frequent is the regular payment made?
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A pension is normally paid monthly, but can be paid less frequently, such as quarterly, half-yearly or even annually. You can choose a time-scale to suit you.
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How do I receive the regular payment?
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The regular payment is normally payable in-advance like rent. We pay direct to your Bank account by EFT.
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Does an annuity enjoy any tax benefits?
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Yes, you enjoy the following benefits.
The amount of pension fund you utilize to purchase an annuity is not taxed.
Your monthly payment is tax-free up to Kshs.25,000.
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What would happen in case of death once the annuity contract is in force?
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If you have an annuity a fixed term (normally called Annuity Certain), the regular payment will continue unabated to the end of the term. The remaining payments will be made to your nominated beneficiary
If you have a guaranteed single life annuity,
If death occurs within the guarantee period, the regular payment will continue up to the expiry of the guarantee period.
If death occurs after the expiry of the guaranteed period, the regular payment will be stopped immediately.
If you have a Joint Life Annuity, payment will stop only if both of you have died after expiry of the guarantee period.
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Does the regular payment increase from one time to time?
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In order to mitigate the effects of inflation (increase in the cost of living) on your retirement income, it is important that you purchase an increasing annuity which ensures that your regular payment increases by the chosen percentage every year. Choosing this option will result in a considerably lower starting income than having a level annuity.
