What is an Annuity?

An annuity is a contractual agreement between you (the Annuitant) and an insurance company in which you make a lump-sum payment(s) and, in return, receive regular payouts, beginning either immediately or at some point in the future. The payouts continue as a regular stream of income to the you as the annuitant and ceases in the event of your unfortunate demise. The lump sum one uses to purchase an annuity could come from your accumulated savings during your active working years in investment solutions such as a Personal Retirement Scheme. An Annuity is not to be confused with an Income Draw Down even though both are retirement income solutions.

 

What Is The Purpose Of An Annuity?

When you retire, it is critical to have in place a reliable source of income to enable you to sustain the kind of lifestyle that you were used to during your active working years. Purchasing an annuity ensures that you will have a steady stream of income in retirement; for life or for a given numbers of years (for example 5, 10, 15 or 20) depending on your preference.  In taking up an annuity you cushion yourself against the possibility of the outliving the initial investment (capital) you paid to the annuity provider.

 

What Are The Features Of The ICEA LION Annuity?

  • Flexibility in Payouts: Upon purchasing an annuity at ICEA LION, you get to choose how regularly you want to receive your payouts. You can opt to receive payments monthly, quarterly, tri-annually, semi-annually or annually in advance.
  • Upwards Adjustments Of Payout Amounts: The amount paid to you can be agreed on and remains fixed throughout the period. However, it could also be increased at a fixed percentage each year in order to offset the effects of inflation: this is called increasing/escalating installments. This can also be done by topping up your annuity otherwise known as annuity augmentation
  • Regulatory Compliance: the annuity fund is invested by professionals and in accordance with the law (The Insurance Act).
  • Growth of Funds: The funds are invested in diversified financial vehicles that offer competitive returns which enable us at ICEA LION to pass on the returns to you as an annuitant in form of competitive annuity rates.

What Types of Annuities Are Available at ICEA LION?

There are different ways you can structure your annuities depending on your preference and circumstance, for example your marital status, the amount you would like your beneficiaries to receive in the unfortunate event of your demise amongst other factors. 

The following is a description of the types of annuities we currently offer at ICEA LION:

  • Deferred Annuity

In a Deferred Annuity, you purchase an annuity but defer the start date of receiving pension).  This annuity type has two phases; the deferred phase in which there are no payouts and the annuity phase in which the plan is converted into regular payouts for life or a limited period. At the expiry of the deferred period, the annuitant automatically begins to receive regular payments.

It is worth noting that, as the annuitant, you can change the beneficiaries and their designated allocations as you please.  Your named beneficiaries are entitled to the annuity funds where applicable in your unfortunate demise as the annuity contract owner (annuitant). 

 

Advantages over immediate annuity: 

  • Usually, your insurer guarantees a fixed rate of interest over the deferred period. This assures you additional interest based on the initial investment over the deferred period and as a result, you end up with a higher amount per installment when you do start getting paid periodically.
  • As you advance in age during the deferred period, there will be a higher level of installment payments for the same purchase premium when you do start getting paid your annuity
  • As the Annuity Owner, you can opt to top up the purchase price before the expiry of the deferred period by making further payments to the insurer. This will raise the level of your income installment payouts when they fall due.

 

  • Guaranteed Annuities

In a Guaranteed Annuity, you get to select a definite minimum period within which to receive the payouts, regardless of when you unfortunately pass on. For example, an annuity guaranteed for ten years will be payable for 10 years or life, whichever is longer. If you unfortunately pass on during the guaranteed period, then the balance of your guaranteed installments will be payable to your nominated beneficiaries. The amount of annuity you can buy depends on the funds you have, your age and gender at the time of your purchase your annuity, annuity type as well as the Guarantee Period you select.

 

The following are the major types of Guaranteed Annuities we offer at ICEA LION:

  • Single Life Immediate Annuity.

This solution provides, in return for your purchase price, regular payments starting immediately and continuing for the rest of your life. This annuity covers only your life as an annuitant and not that of your spouse. It is suitable for you if you wish to have income that is guaranteed to last for the rest of your life after retirement, no matter how long (or short) that may be.

  • Joint Life and Last Survivor Annuity

This solution pays you a steady income for the joint lifetimes of two annuitants; yourself and for your spouse. We recommend this as the most advisable option to provide you with retirement income as a married couple, since in the case of the Single Life Immediate Annuity mentioned above, payments cease if you as the principal annuitant unfortunately dies first, leaving your surviving spouse/partner with no steady source of income. Payments continue in full or part as agreed at the start date after the first unfortunate demise. In the unfortunate event of the demise of both the annuitant and the spouse, before the expiry of the guarantee period, the balance of the guaranteed installments will be payable to the couples’ nominated beneficiaries

The main factors considered in the purchase of a Joint Life and Last Survivor Annuity are the ages of the annuitant and spouse, the guarantee period and the chosen reduction factor.

  • ICEA LION’s AnnuityBora

This solution combines the best of Single Life Immediate Annuity as well as Joint Life and Last Survivor Annuity to give you the regular standard life annuity payments covered in both solutions as well as a refund of the annuity purchase price upon your unfortunate demise as the principal annuitant within a selected period. The refund is payable as a death benefit to your nominated beneficiaries.

At the point of buying the annuity with return of purchase price, you as the principal annuitant can choose from the following refund options up to 100%.

 

  • Reversionary Annuity

This option is appropriate for provision of a retirement income you as part of a married couple that also has young children/dependents. This product provides a steady income to you as the annuity owner and in the unfortunate event of your demise, the payments are changed to pay out to:

  • Widow/er’s pension provided the spouse is still alive; and

 

  • Orphan’s pension[s] also known as an Annuity Certain provided the named children have not attained the specified majority age of 23 years. The resultant total payments to your spouse and children reduce by a predetermined factor, called the Reversionary Factor. For example, your widow’s pension and orphan’s pension/Annuity certain may be 50% and 20% of the initial total pension respectively.

If you as a couple and the named children/dependants unfortunately pass away before the expiry of the annuity’s guarantee period, the guaranteed payments are made to the nominated beneficiaries

The factors considered when purchasing this product are: age of the spouses/couple, guarantee period, current age of the children and the orphan’s pension/cessation age of the children/children’s annuity certain.

  • Temporary Annuities

With this solution, the payments to you cease upon the occurrence of certain named events in your life, other than your unfortunate demise; for example, re-marriage or attainment of a certain age or expiry of a specified term.

 

The following types of Temporary Annuities are available at ICEA LION:

  • Annuity Certain

This product secures payment for a specified period regardless of whether you as the annuitant are alive or not. In the unfortunate event of your demise before the expiry of the specified period, the periodical payments continue to be made to your nominated beneficiary(ies). It is important to note that due to increased life expectancy, this option may not be appropriate for you as a retiree as you may live longer that the selected period.

The main factor considered in when purchasing the Annuity Certain is the term (period) of the annuity contract.

  • Widow/Widower’s Pension

This product ensures that your widow/widower continues to receive the periodical payments after your unfortunately pass on; until they re-marry or in the unfortunate event of their demise, whichever happens earlier.

The main factors considered in the purchase of this product are the gender and age of the widow/widower.

Recent changes in the annuity market have resulted in most pension schemes adopting this as a necessary recommendation in their Trust Deeds and Rules, thereby providing for the purchase of a single life immediate annuity for your window/widower.

  • Orphan’s Pension

This solution provides periodical payments to your orphans and only cease on attainment of a certain pre-agreed age or earlier, in the unfortunate event of the demise of the orphan. When considering the best options to financially support your orphans, it is better to take an Annuity Certain with payments ceasing on attainment of a specified majority age.

The main factor considered in buying this product is the number of years to the age at which payments will cease.

 

What Does An Annuity Income Projection Look Like? 

single life annuity illustration

Client’s Name           –         Vincent

Date of Birth           –         01/01/1964

Purchase Price (Kshs.)           –         3,443,415.25

 

Guaranteed For 

0 Years

Guaranteed For 

5 Years

Guaranteed For 

10 Years

Guaranteed For 

15 Years

Guaranteed For 

20 Years

Annual Escalation or Increase in Payment Monthly Pension Monthly Pension Monthly Pension Monthly Pension Monthly Pension
0% 35,177  34,911  34,207  33,342  32,483 
3% 28,095  27,900  27,330  26,530  25,621 
5% 23,728  23,577  23,103  22,374  21,474 

What Else Do I Need To Know About Annuities In Kenya?

  • Taxation: Under the current Tax Regulations, the first Kes. 25, 000/= of your monthly annuity income is tax-free. The remainder is taxed at the prevailing Pay-As-You-Earn (PAYE) rates and subject to the Personal Tax Relief. Tax on annuity stops on attainment of age 65 years. Click here to learn more.
  • Proof of Life: Once the periodical payments commence, your  we shall from time to time require evidence of your continued life.

Now that you have understood the basics of our ICEA LION Annuity, please click here to get a quote.  If you would like to talk to us in person, you can call us on +254 719 071 999 or request a call back by clicking here.

 

Kindly note that client login is only available to existing ICEA LION customers
Click here to proceed to the Self Service Portal if you are already a client of ICEA LION.
Otherwise, see products available to buy online