Making the Right Retirement Choice: Programmed Withdrawal (PW) vs. Retiree Life Annuity (RLA)

Retirement is one of the most important transitions in the life of any worker. After years of service and savings, the decision on how to draw from your pension account is a choice that can affect not just you, but also your family.

In Nigeria’s Contributory Pension Scheme (CPS), retirees have two major options to choose from:

• Programmed Withdrawal (PW) – managed by your Pension Fund Administrator (PFA)
• Retiree Life Annuity (RLA) – managed by a Life Insurance Company (LIC)

Both are approved by the National Pension Commission (PenCom), but they work very differently. To help a staff make informed choices, let’s use a real-life example.

Case Study: Mr. Ade, 60 Years Old, Father of Three

Mr. Ade has just retired after working 30 years with our company. He has saved ₦7,000,000 in his Retirement Savings Account (RSA).

Currently, he is on Programmed Withdrawal (PW) but is considering whether to switch to Retiree Life Annuity (RLA). His key concerns are:

• Which option will give him the best monthly income?
• Will his children be catered for if anything happens to him?
• Will his money last long enough, since he could live for another 20–25 years?

Option 1: Programmed Withdrawal (PW)

Mr. Ade’s ₦7,000,000 remains with the PFA.

• His monthly benefit is calculated using PenCom’s standard template based on age, balance, and expected lifespan.
• His balance continues to earn investment returns.
• If he dies before exhausting the RSA, his wife and children will inherit the balance.

Estimated PW Benefit for ₦7,000,000: about ₦120,000 per month initially (this is illustrative, actual figures depend on PenCom’s calculation and PFA returns).

Advantages for Mr. Ade:

Higher income at the beginning compared to RLA.

His children will inherit any remaining balance if he dies early.

Funds can grow if the PFA invests well.

Disadvantages for Mr. Ade:

• His monthly income could reduce in future if investment returns drop or if he lives much longer than expected.
• Inflation may reduce the value of his withdrawals over time.

Option 2: Retiree Life Annuity (RLA)

• Mr. Ade will use his ₦7,000,000 to buy an annuity from a licensed Life Insurance Company.
• He will receive guaranteed monthly payments for life, no matter how long he lives.
• Payments are usually fixed, but he can choose an “escalating annuity” (e.g., 5% yearly increase) though this starts lower.
• After the guaranteed period (e.g., 10 years), payments stop at his death.

Estimated RLA Benefit for ₦7,000,000: about ₦95,000 – ₦100,000 per month for life (illustrative).

Advantages for Mr. Ade:

• Peace of mind — income is guaranteed for as long as he lives.
• Protection against outliving his savings.
• No risk of reduced payments due to market fluctuations.

Disadvantages for Mr. Ade:

Lower monthly income at the beginning compared to PW.

Once money is transferred to the insurance company, he cannot reverse or withdraw it.

His children will not inherit much (or anything) after the guaranteed period.

Inflation may reduce purchasing power over time since payments are mostly fixed.

Side-by-Side Comparison (₦7,000,000 Balance)

Why PFAs Prefer Marketing Programmed Withdrawal

It is worth noting that PFAs prefer marketing Programmed Withdrawal because:

• They keep managing the retiree’s funds and continue earning fees.
• Retirees feel more in control since they can monitor their RSA.
• PW allows flexibility and inheritance, which makes it easier to “sell” to families.

By contrast, once money moves to an insurance company for RLA, the PFA loses those funds.

So, What Should Mr. Ade Do?

If higher income now and leaving something for his children is his top priority, staying on PW makes sense.

If he fears outliving his savings and wants guaranteed income for life, then switching to RLA could give him peace of mind, even though his children will inherit less.

Some retirees choose a hybrid approach: take part of their balance as a lump sum, stay partly on PW, and use part for RLA.

Conclusion

Retirement income choice is not “one-size-fits-all.”

For our staff members, the key is to weigh:

• Security vs. Flexibility
• Inheritance vs. Lifetime Guarantee
• Higher initial income vs. Peace of mind in later years
•  

Mr. Ade’s case shows that Programmed Withdrawal pays more now and benefits his children, while Annuity gives less now but protects him for life.

Every staff should take time to review their family needs, health condition, and financial priorities before deciding.

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