Revista Activos (Jan 2023)
Impact Of Annuity on The Economic Development of Nigeria
Abstract
An annuity is a way of transferring longevity risk from an individual to an insurance company, which can pool risk among many individuals and achieve greater diversification of risk than can be accomplished by any individual. Annuity premiums build capital for insurance companies and encourage technical innovation and progress, while the benefits paid to annuitants are beneficial to them in the and, in turn, helps with the economies of large-scale production and increases specialization, which helps to accelerate labour profuctivity and increase GDP. This paper examines the impact of annuities on economic development in Nigeria. Annuities provide longevity risk protection and retirement income security. The study aims to determine the impact of annuity premiums paid by workers and annuity benefits paid to retirees on Nigeria's economic development, as measured by real GDP. An ex-post facto research design is adopted using secondary data from 2014-2020. Two hypotheses are tested using regression analysis. The first hypothesis postulates that annuity premiums do not have significant impact on economic development. The second hypothesis postulates that there is no significant effect of annuity benefits on economic development. The results reject both null hypotheses at the 5 % significance level. Annuity premiums positively and significantly (p = 0.013) affect economic development. This occurs as premiums create capital formation for insurance firms to make productivity-enhancing investments. However, annuity benefits negatively and significantly (p = 0.0027) affect development, likely indicating funds withdrawn from the economy. Recommendations include the establishing structures to develop annuity products and markets to address the problems of the decumulation phase. In addition, it is advisable to increase investment in annuity premiums and to monitor the payout ratio of annuities. The empirical analysis provides useful insights, but future research should explore long-term macroeconomic effects.
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