These group life and pensions marketing identification and delivery strategies are marketing insurance products and services.
It is with deep gratitude and humility that I extend my thanks for the opportunity to address this esteemed gathering at the workshop on Group Life and Pension Schemes. The privilege to share insights and expertise in the realm of insurance is both an honor and a responsibility that I do not take lightly. I am particularly grateful to the management of Anchor Insurance Company Limited for extending this invitation, and I commend the DGM (Technical) for their graciousness in allowing me to contribute a portion of my knowledge and experience to this vital discussion.
Group life and pension schemes play a crucial role in providing financial security and peace of mind to individuals and their families. As we gather here today, we recognize the significance of these insurance products in safeguarding the well-being of employees and retirees alike. By delving into the intricacies of group life and pension schemes, we have the opportunity to enhance our understanding, exchange ideas, and explore innovative approaches that can further strengthen the effectiveness and accessibility of these vital insurance offerings.
I am excited to engage with each of you in meaningful dialogue and collaborative learning throughout this workshop. Together, we can leverage our collective expertise and insights to address challenges, seize opportunities, and advance the goals of promoting financial security and prosperity for all. I am confident that our discussions will yield valuable outcomes that will not only benefit the insurance industry but also positively impact the lives of individuals and communities across our nation.
Pension Scheme Funding and Administration
Pension - What is it? What about it? For who? Thought! Alfred Mercier once said, "There was a man in the East whose constant prayer was that he might see today with the eyes of tomorrow". Unquote!
In layman's language, a pension scheme is an arrangement organized by an employer on behalf of a group of employees to provide benefits for or in respect of one or more employees on leaving services, or on death or retirement. The need for each employer of labour to make such an arrangement for her employees is further strengthened by the fact that the old extended family system which provided care for the people facing the contingencies listed above is generally breaking down although the policy would be influenced by the scheme philosophy and the corporate policy. A major factor in the production and profitability of any organization is the staff. This is basic.
The ultimate objective of any pension scheme is to ensure that benefits due to retiring, withdrawing and or dead members are duly and promptly paid. The fund consists of contributions by an employer (non-contributory) or both employer and employees in a contributory scheme. Pension is for all humanity, market it to the self-employed, contractors, corporate bodies or clubs. Life Assurance Salesmanship Effective Selling and Six Cylinder Points
Types of Death
From an economic viewpoint, any permanent loss of earning capacity is tantamount to "Economic death".
[1]. Actual Death: This represents everyday usage of death i.e. the so-called casket death whereby the individual permanently ceases to be an actor on the surface of the earth/ Such person dies both economically and biologically.
Life insurance could be used to mitigate the economic impact of actual death.
[2]. Living Death: Any permanent disability which reduces the individual's earning capacity drastically or completely is nothing short of a "Living Death" such that it is biologically alive but economically dead.
Personal Accident Insurance Policy could help reduce the devastating economic impact of living death.
I believe this answers the three drastic questions of the prospect; What is it, What about it and for who!
The parties of the contract:
Since this workshop is based on an insurance proposal, I will limit myself to the four walls of the policy.
Types of Pension Schemes
[1]. Public Service Pension: This is derived from the consolidated fund instituted by the government - benefits are paid monthly and taxable since it has become an income. There are two forms of payment - Gratuity and Pensions. Gratuity is a function of the employee's final salary. It is paid free of tax and once.
[2]. Insured Pensions: These are the employee's contributions whose pension benefits are invested in insurance policies. From the diagram, you will see the functionaries of the contract under an insured pension scheme; it's funding, administrators and beneficiaries.
Rate of Contributions
The rate approvable by the pension guidelines is 25% of the total annual emoluments (previously 25% annual basic salary) of employees. E.g. Salary/Housing/Transport/LV/Entertainment. In very many policies, the employees contribute a lesser percentage.
Main Attractions
[a]. There is no restriction to the number of benefits committed into a lump sum.
[b]. Lump sum benefits are not taxed in the hands of the recipients.
[c]. The employer is not bothered by former employees once they have been paid off.
[3]. Private Invested Scheme: This is mostly practised by finance houses e.g. banks i.e. UBA, First Bank, Union Bank and Cooperative Development Bank.
This is costly for the bank because they will have to appoint other professionals to assist make the scheme a success. In most banks, they establish trustee firms e.g. UBA Trustees Limited. See duties of Trustees.
Insured Schemes
The insured scheme can be based on any or a combination of the following:
[i]. Group endowment.
[ii]. Deposit administration.
[iii]. Wholly pure endowment.
Group Endowment is a money-purchased method by which contributions by the employer and the employees are used to purchase endowment and pure endowment benefits. e.g. the employer's contribution is normally used to purchase endowment benefits while the employee's contribution is applied to purchase pure endowment benefits. In very few cases both the employer's and the employee's contributions are applied to purchase pure endowment benefits.
Analysis of Endowment Schemes
An ideal scheme should provide benefits on death-in-service and on retirement. Endowment Assurance is designed to meet the needs of both events. It provides lump sum benefits on death before returement age, and on retirement if the employee lives till the retirement age. An endowment assurance scheme is a combination of savings/investment and life assurance. On entry into the scheme, the contribution by the employer in respect of the employee is applied to purchase a guaranteed benefit (sum assured); the sum assured is determined relative to the premium contributed, the age of the member and the retirement date.
Details for Compulation Obtained are:
Full name of the Employee
Date of birth (actual) day, month, year
Date of Employment day, month, year
Annual salary
Allowances
% of contributions - ER - 20%
% of contributions - EE - 5%
Total contribution per annum - 25% x total emolument = premium payable.
The life clerk will calculate the schedule of cost and benefits and forward the same to the Secretary, Board of Trustees for settlement.
Deposit Administration Scheme
This is not a very good rewarding scheme for insurance companies/brokers. "DA" as is popularly called, is an arrangement for transferring investing and administering the fund; however, the day-to-day administration of the scheme is in the hands of the Board of Trustees. The insurer guarantees a rate of interest which will be credited at the end of a scheme year. From time to time contributions will be made to the fund hence this can be allocated to individual members or administered on a pool basis.
Withdrawal at either leaving service or retirement at any time, the insurer pays - what has been contributed plus interest to date.
Advantages
This system of investing, in insurance scheme's funds has to its credit higher benefits on retirement. There is no loss to the scheme by way of surrender when members leave before the normal retirement age.
Disadvantages
In this type of scheme - there is no death cover. High mortality at the initial stage of the fund may have some adverse effect on the growth of the scheme, especially those administered on a pool basis. In this case, there must be a consideration of additional group life (Term Assurance) to take care of the mortality risk.
Pure Endowment Scheme
Like the ordinary endowment scheme, the employee's contribution is applied to purchase a guaranteed capital sum on entry; further capital sum increases in premium resulting from an increase in the employee's salary. Bonuses are also added from time to time as the employee share in the life fund's surplus. A pure endowment scheme gives a higher return than the endowment since it does not cover the death-in-service risk. (Brokers love to sell this policy because of double commission).
Benefit on Withdrawal, Death or Retirement
The benefits payable is 100% return plus interest. It may also be taken in a lump sum or as an annuity.
Advantages
Higher benefits are payable on retirement or withdrawal than are available under ordinary endowments.
Disadvantages
There is no death-in-service cover. A separate group life (Term Assurance) will have to be taken
Purpose of the Trust Deed and Rules
[1]. For stating the obligations of the employer and the trustees towards each other.
[2]. To ensure that the funds' contributions and the benefits earmarked for the scheme are not used for any other purpose.
[3]. For tax reasons.
Advantages of Establishing a Pension Scheme
[a]. Increase the morale of employees.
[b]. Retaining experienced employees.
[c]. Attracting qualified employees.
[d]. Maintaining healthy labour/management relationships.
[e]. Tax advantages.
Eligibility into the Scheme
[1]. Must be a permanent staff of the company.
[2]. Must be a Nigerian and resident of Nigeria.
[3]. Must have attained the age of 18 years.
[4]. Must complete the scheme's membership issued by the insurance company.
[5]. Must not be above 55 years.
Income Tax
Pension schemes set up under the Income Tax Management Act 1961 whether privately invested or insured, must be approved by the office of the Joint Tax Board (JTB) of the Federal Inland Revenue.
No scheme can be legalized if it has not received approval from the Joint Tax Board.
One major concession of the approval is the relief on contributions and tax-free lump sum benefits paid to the retired staff.
Benefits on Retirement
On retirement at the normal retirement date, an employee is entitled to a lump sum as secured by the employer's contributions with compound interest.
Members Leaving Service
If an employee shall before the normal retirement date cease to be employed he shall forthwith cease to be a staff member and a member of the scheme. If such cessation from service is dismissal for a proven case of fraud or misconduct constituting a criminal offence or in the opinion of the Trustees, the employee resigns in order to avoid such dismissal, the employee shall not be entitled to any part of the employer's contribution beyond that secured by his own contributions.
Table of Benefits at Withdrawal
Normal Retirement Date
In Nigeria 60th birthday is the retirement age. It varies between Judges and clergymen who run up to 65 - 70 birthdays.
Board of Trustees and Functions
The Board of Trustees have usually 7 members if the scheme is large or 5 members if small. It consists of 5 or 3 management staff and two junior staff with a chairman and secretary.
Functions
[a]. They are appointed by the board of directors in some companies or management boards.
[b]. Keep all documents pertaining to the scheme.
[c]. Interpretes the legal implications of the scheme to members.
[d]. Their discretion is final.
[e]. They are the chief paymasters.
[f]. They administer the scheme and exchange correspondence with the insurance company on all matters affecting the scheme e.g. claims and payments.
Members Handbook
Each employee is expected to be adequately informed of his rights and duties under a pension scheme. The rules of the scheme are summarized in an abridged form and printed as a handbook for the members in a language simple enough for understanding.
The nomination form for payment of death benefit is usually printed alongside the handbook. All employees must complete and detach the same to the secretary of the board of trustees for record keeping.
Self-administered Scheme
As I have already stated and some names of establishments given who maintain such above-named schemes, may I add that these schemes are run by selected trustees with representatives from ASBIFI, NUBIFIE and Higher Management Staff. Their responsibility is for investing the fund, in addition to the day-to-day running of the scheme rest on them.
There are, however, many disadvantages to the self-administered scheme; one major aspect is the use of trustees to administer the investments of the scheme while their day-to-day work suffers.
Secondly, the scheme becomes very costly in terms of employing external professionals i.e. Pension Consultants, Lawyers and Accountants.
Group Life or Death Benefits or Term Assurance
Group life is used to cover or supplement the death benefit under an assured pension scheme. Where an employer promised to pay a given level of benefit on the death of an employee while in service, it may be the case that the benefit purchased under the group endowment scheme is not enough to meet this level.
On the other hand when no death benefit is provided, as in Pure Endowment or Deposit Administration scheme a Group life (Term Assurance will be used to cover the death benefit. A significant feature of this cover is the cheapness relative to the level of benefit available.
No Benefit is However Payment on Survival
In all cases, premium payment is borne by the employer as an additional cost to the normal contribution.
Analysis
Additional Benefit - This will be a given multiple of salary 2 x or 4 x total annual salary.
Supplementary Benefit - This will be expressed as a multiple of salary less the sums assured (Capital Sum) under an endowment scheme i.e., 4 x salary less endowment sum assured.
Source: A paper presented by Matthew Gab Akpan during the Life Assurance Salesmanship Seminar organized by Anchor Insurance Company Limited, Uyo, Akwa Ibom State, (10th - 12th April 2001).
COMMENTS