If you save diligently across your working life, you’ll eventually face one of retirement’s hardest questions: how do you turn what you’ve put aside into a paycheque that lasts for the rest of your life? In Nigeria, someone who reaches 60 can expect to live another 18 years on average — and many live well into their 80s and 90s. An annuity is one of the few products designed to answer that question.
An annuity is a contract you buy from a National Insurance Commission (NAICOM)-licensed insurance company. You pay them a lump sum (or contribute over years), and in return, they pay you a guaranteed income (usually monthly) for life or for a fixed number of years.
Under Nigeria’s Pension Reform Act 2014, annuities are most commonly bought at retirement — but you don’t have to be retired to invest in one. This guide breaks down what annuities are, how they work in Nigeria, how to buy one and what to do if you’re decades away from being eligible.
What exactly is an annuity?
Think of an annuity as a salary you buy for yourself for life. You pay either a single lump sum (typically your Retirement Savings Account or RSA balance at retirement) or smaller premiums over your working years, and an insurance company pays you a fixed income at regular intervals until you die — or for a set number of years, depending on the plan.
However, an annuity is not the same as Esusu, Ajo or a fixed-term savings product like SafeLock. Those are short-term savings tools with a defined end date. An annuity is simply a regulated insurance contract that pays you for as long as you live.
How do annuities work in Nigeria?
Annuities in Nigeria are jointly regulated by the National Insurance Commission (NAICOM) and the National Pension Commission (PenCom), under the Pension Reform Act (PRA) 2014.
There are two main ways to buy one in Nigeria:
- The Retiree Life Annuity (RLA). When you retire under the Contributory Pension Scheme (CPS), you can use the balance in your Retirement Savings Account (RSA) to buy an annuity from a NAICOM-licensed life insurer. However, you must be at least 50 or at official retirement, whichever comes later.
- The deferred annuity. You don’t have to be retired to buy this. Self-employed Nigerians, freelancers and anyone outside the CPS can pay premiums to a licensed insurer over the years and start receiving income at an agreed future date — usually at 60 or 65.
Either way, you’re buying from an insurance company, not a Pension Fund Administrator (PFA). Once you choose the annuity route, your money moves from your PFA to the insurer.
There’s also a non-annuity alternative at retirement called Programmed Withdrawal, which we’ll cover later in this article.
What types of annuities can you buy as a Nigerian?
Not every annuity is built the same way. A few standard design choices (when payments start, whether they rise, and who gets paid after you) determine how much income you actually receive and what happens to your beneficiaries.
You’ll usually be offered three choices, often in combination:
- Flat vs increasing annuities. A flat annuity pays the same amount in naira every month for life. An increasing annuity raises your monthly payout by a set percentage each year (typically 5%, 7.5% or 10%) to help offset inflation. At Nigeria’s current inflation rate of 15.69% (as of May 2026), a flat ₦100,000 monthly payout will only have the purchasing power of about ₦50,000 (in today’s money) within five years. That’s why the increasing option exists.
- Single-life vs joint-life annuities. A single-life annuity pays only you. A joint-life annuity continues paying your spouse (and only your spouse) 50 or 75% of your monthly income after you die, because the insurer prices the plan on both your life expectancies. You’ll need to name them at policy purchase (you can’t add them later) and accept a slightly smaller monthly income in exchange.
- The 10-year guarantee. Most Nigerian annuities carry a 10-year guarantee: if you die within the first 10 years, your beneficiaries receive the remaining payments as a lump sum.
In practice, most retirees end up with some combination of these — say, an increasing joint-life annuity with a 10-year guarantee. But the bigger decision for most working-age adults is whether to take the annuity route at all.
Programmed Withdrawal vs Retiree Life Annuity
Buying an RLA is one of two payout options the Pension Reform Act gives you at retirement. The other is Programmed Withdrawal (PW) — where, instead of handing your RSA balance to an insurer, your PFA holds onto it and pays you a calculated monthly amount from that balance until the money runs out.
Your PFA will ask you to choose between the two routes when you retire, and the decision is irreversible once you go the annuity route, so the trade-offs matter.
Here’s how both options compare:
| Feature | Programmed Withdrawal (PW) | Retiree Life Annuity (RLA) |
| Provider | Pension Fund Administrator (PFA) | NAICOM-licensed life insurer |
| How long it pays | Until your RSA balance runs out | For life — no matter how long you live |
| Who bears the risk | You | The insurance company |
| Investment upside | Yes — RSA growth is credited to your account | None — your rate is fixed at contract signing |
| Death benefit | Full remaining RSA balance to your next-of-kin, anytime | Lump sum to beneficiaries only if you die within the first 10 years |
| Flexibility | Can switch to RLA later | Irreversible; can switch insurers after 2 years with NAICOM approval |
| Best for | Retirees who prioritise inheritance and RSA growth | Retirees who prioritise a guaranteed lifetime income |
The simple way to think about it: a Programmed Withdrawal lets you keep control of your money and pass on what’s left, while an RLA hands you certainty in exchange for that flexibility. Neither is universally better — the right answer depends on whether your priority is income security in old age or leaving something behind for your family.
How do you actually buy an annuity in Nigeria?
If you’ve decided an RLA is the right route for you, the actual process is more straightforward than most people expect — the bigger hurdle is the paperwork, not the bureaucracy.
Here’s the path for buying an RLA at retirement:
- Get a recent RSA statement from your PFA. This must be less than one month old.
- Confirm you’re eligible. You must be at least 50 or at official retirement, per Section 7(1) of the PRA 2014.
- Get quotes from at least three NAICOM-licensed insurers. The full list of licensed life insurance companies is published on the NAICOM website. Quotes can vary by 5% to15% for the same premium, so shop around.
- Compare the right things. Check the monthly income offered, your structuring options (flat vs increasing, the guarantee period and spousal protection), and the insurer’s capital strength (how much financial reserve they hold to honour decades of future payments). Under the 2025 insurance industry reforms, life insurers must now hold at least ₦10 billion.
- Get a Provisional Annuity Agreement from your chosen insurer. This is a formal document committing both you and the insurer to the terms before any money changes hands. Most insurers provide it on request.
- Submit it to your PFA. Under the March 2025 PenCom directive, PFAs must approve eligible applications within two working days, and payment must be processed within 24 hours thereafter. Your first annuity payment should arrive in weeks, not months.
Documents you’ll need:
- Completed proposal form
- RSA statement
- Retirement letter
- Valid government ID
- BVN
- Birth certificate or sworn age declaration
- Passport photos (yours and your beneficiaries’)
- A recent utility bill
- The Provisional Annuity Agreement
For a deferred annuity, the process is simpler: contact a licensed insurer directly, agree on a premium structure, complete KYC, and maintain payments through your earning years.
Either route offers the same outcome — a guaranteed cheque, on a schedule you set, for as long as you live. The question is whether that outcome is worth the trade-offs.
What are the pros of investing in annuities?
Annuities exist because they solve a problem many savings and investment products struggle with: how to turn a limited amount of money into a paycheque that doesn’t run out. Once you sign one, you unlock a set of protections that few other Nigerian financial products offer.
The pros of annuities:
- Guaranteed income for life — the only retail product in Nigeria that legally promises you can’t outlive your income.
- Tax-free payouts. Annuity income is exempt from personal income tax under Section 10(2) of the PRA 2014.
- Longevity and investment risk move to the insurer, not you — a useful risk transfer.
- Inflation-protected options if you pick an increasing annuity (5%, 7.5% or 10% per year).
That’s the upside, and it’s substantial. But every product that promises certainty asks for something in return. Annuities are no exception.
What are the cons of investing in annuities?
For every guarantee an annuity provides, there’s a trade-off you accept. Some are small; others are permanent. It’s worth weighing them before you commit your RSA balance to any one insurer.
The cons of investing in annuities:
- Inflation risk on flat annuities. Even at 15.7% inflation, a fixed naira payout loses real value fast.
- Irreversibility. Once you transfer your RSA balance to an insurer for an RLA, you can’t revert to Programmed Withdrawal. You can switch insurers after two years with NAICOM approval, but you can’t “un-annuitise.”
- No upside from RSA growth. Any investment profit the insurer makes on your premium belongs to the insurer.
- Limited inheritance. Once you’ve passed the 10-year guarantee window, nothing transfers to your heirs — the insurer keeps paying you for life, but the contract ends with you. Retirees with strong inheritance priorities may prefer Programmed Withdrawal, where any remaining RSA balance goes to their next of kin.
None of these is a dealbreaker on its own, but stacked together, they explain why an annuity decision deserves real thought — not a five-minute conversation with your PFA on the day you retire.
The bottom line
Annuities aren’t a get-rich product; they’re a do-not-outlive-your-money product. If you’re approaching 50, get quotes from at least three NAICOM-licensed insurers and weigh Programmed Withdrawal against RLA carefully — the recent insurance-industry reforms are real safety upgrades.
If you’re 20+ years away from 50, the most useful thing you can do today is build the savings and investing habit that funds your eventual options, whether or not you ever buy an annuity. You can start that habit today on the Piggyvest app and put your money to work while you still have time on your side.
The articles on the Piggyvest Blog are developed by seasoned writers who use original sources like authoritative websites, news articles and academic journals to perform in-depth research. An experienced editor fact-checks every piece before it is published to ensure you are always reading accurate, up-to-date and balanced content.
- National Pension Commission (PenCom)
- National Insurance Commission (NAICOM)
- PenCom Circular on Approval and Payment of Benefits by PFAs (March 2025)
- Nigerian Insurance Industry Reform Act (NIIRA) 2025
- IGI Nigeria Annuity Plan rate table
- Piggyvest Savings Report 2025
