Group Life and Pensions Marketing Identification and Delivery Strategies

These group life and pensions marketing identification and delivery strategies are marketing insurance products and services.

 Best Group Life and Pensions Marketing Identification and Delivery Strategies

I give God thanks for the honour to be invited to present a paper at this very important workshop on Group Life and Pension Scheme. I commend the management of Anchor Insurance Company Limited, especially the DGM (Technical) for the courtesy of allowing me to extract part of my wealth of experience and expertise in this class of insurance.

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 language, 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 of 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 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 the clubs.

Types of Death

From an economic viewpoint any permanent loss of earning capacity is tantamount to "Economic death".

[1].  Actual Death: This represents in 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 "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:

Best The parties of the contract

Since this workshop is based on an insurance proposal, I will limit myself within the four walls of the policy.

Types of Pension Scheme

[1].  Public Service Pension: This is derived from the consolidated fund intituded 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: This is 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; its funding, administrators and beneficiaries.

Rate of Contributions

The rate approvable by the pension guidelines is 25% of total annual emoluments (previously was 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 amount of benefits committed into 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 practiced by finance houses e.g. bank i.e. UBA, First Bank, Union Bank and Cooperative Development Bank.

This is costly on the bank because they will have to appoint other professionals to assist make the scheme a success. In most banks, they establish trustees firms e.g. UBA Trustees Limited. See duties of Trustees.

Insured Scheme

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 benefit while the employees contribution is applied to purchase pure endowment benefit. In very few cases both the employer 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 retureentage, and on retirement if the employee lives till the retirement age. An endowment assurance scheme is the 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 benefit and forward the same to the Secretary, Board of Trustees for settlement.

Deposit Administration Scheme

This is not a very good rewarding scheme to insurance companies/brokers. "DA" as is popularly called, is an arrangement for transferring the 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 contribution will be made into the fund hence this can be allocated to individual members ort administered on 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, on insurance scheme's funds has to its credit highter benefits on retirement. There is no loss to the scheme by way of surrender when members leave before the normal retirement age.

Disadvantages

On 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 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 increase in employee's salary. Bonuses are also added from time to time as the employee's share in the life fund's surplus. A pure endowment scheme gives a higher return than the endowment since it does not cover 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 lump sum or as an annuity.

Advantages

Higher benefits are payable on retirement or withdrawal than are available under ordinary endowment.

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 labours/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 in 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 of 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 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 offense 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

Best Table of Benefits at Withdrawal

Normal Retirement Date

In Nigeria 60th birthday is the retirement age. It varies between Judges and Clergyman 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.

Nomination form for payment of death benefit is usually printed alongside in 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 in 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.

Secondary 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 on 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 borned 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)

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Nsikak Andrew: Group Life and Pensions Marketing Identification and Delivery Strategies
Group Life and Pensions Marketing Identification and Delivery Strategies
These group life and pensions marketing identification and delivery strategies are marketing insurance products and services.
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