Pension Annuities Explained

In the traditional African society, social security systems were guaranteed with the elderly being taken care of by younger members of society.  However due to social and economic changes, there has been a breakdown in the tradition that ensured security at old age. 

Nowadays it is not uncommon to see the elderly fending for themselves and in some cases even being guardians to orphans. The reality of life is that no one is able to work forever as challenges such as health may even force an individual to retire before the legal retirement age.  It has therefore now become a personal responsibility to ensure that one has planned for retirement life to avoid the ‘Old Age Trap’. 

When a pension scheme member under a private pension scheme retires, he or she gets 50% as lump sum payment of all his accrued benefits and purchases an annuity with the other 50%. 

Under Zambian regulation, annuities are prescribed under the Income Tax Act under the Fourth Schedule pertaining to pensions.  Section 2 (c )(vii) provides that, where any pensions payable out of the fund or under the scheme to an employee may be commuted, the amount of the pension that may be commuted shall not exceed five thousand kwacha or one-half of the pension, whichever may be the greater. (As amended by Act No. 14 of 1994, No. 3 of 2002 and No.1 of 2004). 

An annuity is a financial product, sold by an insurance company that pays out a fixed stream of payments to an individual after he has attained his retirement age. 

Annuities provide a steady flow of income after an individual has retired and serve as a complement to other retirement income sources.

There are two types of annuities deferred annuity and immediate annuity.  In a deferred annuity, the income payments begin more than 12 months after purchase of an annuity.  The premium can be a lump sum that may be left to accumulate with the life insurance company or an individual can make a series of periodic payments until retirement.  Where as in an immediate annuity, the income payments begin within 12 months after the purchase of an annuity.  This type is suitable for individuals who are about to retire or have retired.  The premium is paid as a lump sum at the time of purchase of the annuity.

An individual can choose to be paid an annuity monthly, every three months, every six months or once a year.  An annuity contract may grant a guaranteed period of payment, say 5, 10 or 15 years.  Sometimes, if the individual receiving annuity payments dies, the balance may be paid immediately instead of being paid on the periodic due dates over the remainder of the period of the guarantee.

When a scheme member is close to retirement, the Fund Administrator of his pension scheme is required to organize a pre-retirement session for the member.  These sessions are important because they provide information on retirement options available to the member including the discussion of annuity types and quotations from life insurance companies, if a member is eligible.  In addition, factors affecting the pricing and calculation of annuities are explained in detail to ensure that the member understands what will affect the amount of income to be received after he purchases an annuity.

The amount of income payment that an individual will receive after the purchase of an annuity will depend on the amount you pay to purchase the annuity, the individual’s age and sex when the purchase is made and benefit options that the individual will select.

An individual can select from four (4) benefit options as indicated below:

  • Annuity without guarantee period – pays a fixed regular income for as long as an individual lives.
  • Annuity with a guaranteed period – pays a fixed regular income for the rest of the individual’s life, or the guaranteed period say 15 years whichever is longer.  For example, consider an individual who purchased an annuity with guarantee period of 10 years. If he dies after 5 years, his beneficiary will continue to receive the annuity payments for the remaining period.  On the other hand, if he outlives the 15-year period, he will continue to receive an income for as long as he lives.
  • Increasing annuity – pays an income, which increases each year at a specified rate to partially protect your income from inflation, for the rest of your life.
  • Joint-life annuity – pays an income for the rest of an individual’s life, and then it continues to pay the individual’s spouse for the rest of her/his life, after the death of the annuitant.  However, the spouse may receive a reduced income amount.

As a scheme member that is about to retire, it is important to get an updated Member Statement showing all contributions made by you and your employer as per Scheme Rules, assess your current and future financial needs and request for a pre-retirement session with your Fund Administrator to discuss your available retirement options and possibly select one that suits your retirement needs. You can also request for different Annuity Quotations from various annuity providers.  This will enable to compare the available options on the market. 

In conclusion, there is still a lot of work that needs to be done in sensitising the public on retirement annuities. The Fund Administrators have an important role to play; educate the members during the scheduled annual Member Clinics members are well informed on annuities before retiring.

For comments or questions, send us an email at pia@ or follow us on our Facebook page, Pensions and Insurance Authority.

You can also call us on 211-251 401/5 or 0977-335809 or 0965-255136.

For complaints, kindly use the following details:

Pensions-related complaints: Mobile: 0950-136663, Email: pensions@

Insurance-related complaints: Mobile: 0950-136662, Email:

The author is an Inspector – Market Development in the Pensions Department at PIA.