NPS (National Pension Scheme) is one of the most favored retirement savings schemes in India. However, choosing the right NPS annuity option, a compulsory part of the scheme can be confusing. Currently, there are five NPS annuity options available.
Today, we’ll walk you through the features and benefits of NPS annuity option to help you make the best choice for your retirement needs.
- NPS- National Pension Scheme in India
- What is an NPS Annuity?
- Features of NPS in Annuity
- Benefits of Annuity Investment
- NPS Annuity Options
- List of Approved Annuity Service Providers (ASPs) for NPS Subscribers
- Choosing the Right Annuity Option for Your Needs
- Conclusion
- FAQs|National Pension Scheme (NPS) Annuity
NPS- National Pension Scheme in India
The National Pension System (NPS) is a voluntary retirement savings plan designed to help individuals contribute regularly to a pension fund. This initiative aims to provide a sustainable way to ensure adequate retirement income for all Indian citizens, helping secure their financial future through planned savings.
Any Indian citizen, whether living in India or abroad, can open an NPS account if they meet the following conditions:
- They are between 18 and 70 years old at the time of application.
- They comply with the KYC (Know Your Customer) norms.
What is an NPS Annuity?
An NPS annuity is a financial product purchased with the funds from your NPS account at the time of retirement. An annuity means the monthly payment the subscriber gets from the Annuity Service Provider (ASP).
Accumulation Phase:
During your working years, you contribute to your NPS account regularly.
These contributions are invested, and the corpus grows over time.
Retirement Phase:
At retirement, you can withdraw 60% of the accumulated corpus as a lump sum.
The remaining amount must be used to purchase an annuity.
Annuity Purchase:
You have to buy an annuity plan from an Annuity Service Provider (ASP) registered with the PFRDA (Pension Fund Regulatory and Development Authority).
The annuity plan ensures you receive a regular pension (monthly, quarterly, or annually) for the rest of your life.
The actual annuity amount will depend on the prevailing rates at the time of purchase of the annuity.
Annuity Deposit Scheme
An annuity deposit scheme lets you contribute funds to an annuity provider, usually an insurance company, in exchange for guaranteed regular payments.
With the NPS, you can choose from different annuity deposit schemes offered by approved insurers to get a steady income after retirement.
Currently, there are 15 Annuity Service Providers.
Features of NPS in Annuity
NPS annuity options are characterised by the following:
- Steady Income
Annuity investment in NPS ensures a regular flow of income post-retirement. Payments come in at fixed dates every month, making it easier to manage your expenses.
- Choice of Options
With five different NPS annuity scchemes available, it’s essential to pick one that fits your investment goals.
- Calculation of Annuity Percentage
The percentage of Annuity investment in NPS depends on various factors like your age, annuitization, spouse coverage, and the type of annuity scheme chosen.
Benefits of Annuity Investment
NPS annuity offers various advantages, such as:
- Lifetime Income Security
Subscribing to an NPS annuity scheme ensures a stable income throughout retirement.
- Choice of Annuity Plans
Various options are available, such as lifetime income, income for a certain period, or income with a return of the purchase price to your nominee.
- Spousal and Nominee Benefits
Depending on the NPS annuity options, your spouse can continue to receive annuity benefits after your demise.
Some schemes also allow for the inclusion of a nominee.
Let us take a look at the current NPS annuity schemes available in India.
NPS Annuity Options
In the NPS, you can choose from various annuity options offered by approved insurers. These include annuity for life, joint life annuity, with or without ROP, and other customised plans.
When you buy an annuity plan, the insurance company promises to pay you a set amount every month. This means you will keep getting a regular income (pension) after you retire.
Here are the five main NPS annuity options you can choose from:
Annuity for Life with Return of Purchase Price (ROP)
You get a monthly payment for life.
An annuity for life provides regular payments for your entire life.
In the NPS, you can choose this option to secure financial stability during retirement. It gives you payments continuing until you pass away.
When you pass away, your nominees get back the money you originally invested.
Joint Life Annuity with ROP
You get a monthly payment for life. After you pass away, your spouse continues to get the payments for their lifetime. Once your spouse passes away, your nominees get back the original investment.
A joint life annuity covers both you and your spouse, ensuring financial support for the surviving spouse after one of you passes away.
Family Income with Return of Purchase Price (ROP)
You get a monthly payment for life. After you pass away, your spouse continues to get the payments for their lifetime. If your spouse passes away, the payments go to your dependent mother and then to your dependent father.
Once the last family member passes away, your children or legal heirs get back the original investment.
Annuity for Life without ROP
The subscriber will receive annuity payments for their lifetime.
When the subscriber dies, the payments stop immediately, and no money is returned to the nominees.
Joint Life Annuity without ROP
The subscriber receives an annuity for their lifetime. If the subscriber passes away, the annuity payments will go to the spouse for their lifetime. When the spouse dies, the payments stop immediately, and there is no payment returned to the nominees.
List of Approved Annuity Service Providers (ASPs) for NPS Subscribers
Here are the names of the 15 Annuity Service Providers (ASPs) appointed by PFRDA:
- Life Insurance Corporation of India
- HDFC Standard Life Insurance Co. Ltd
- ICICI Prudential Life Insurance Co. Ltd.
- SBI Life Insurance Co. Ltd.
- Star Union Dai-ichi Life Insurance Co. Ltd.
- Bajaj Allianz Life Insurance Company Limited
- Edelweiss Tokio Life Insurance Company Limited
- India First Life Insurance Company Limited
- Canara HSBC Oriental Bank of Commerce Life Insurance Company Limited
- Kotak Mahindra Life Insurance Company Limited
- Max Life Insurance Co. Ltd.
- Tata AIA Life Insurance Company Limited
- PNB MetLife India Insurance Co. Ltd
- Shriram Life Insurance Company Limited
- Aditya Birla Sun Life Insurance Company Limited
These ASPs offer annuity products for NPS subscribers to choose from at the time of superannuation or premature exit.
Choosing the Right Annuity Option for Your Needs
The first three options (with ROP) are great if you want to ensure a steady income for yourself and your spouse and also leave a lump sum for your children.
The last two options (without ROP) might be better if you don’t have dependents or your children are financially independent.
Annuity rates are usually lower for options with ROP compared to those without ROP.
As per the survery, most pensioners (70%) choose the Annuity for Life with Return of Purchase Price option to leave something for their children.
NPS subscribers can now buy several annuities instead of just one if they have more than Rs 10 lakh in their annuity corpus.
Which option is best for you depends on your personal needs, dependents, income requirements, other income sources, and assets.
Things to Keep in Mind While Choosing NPS Annuity Options
How to Choose the Right NPS Annuity:
- Look for Long-Term Safety: Since an annuity is a long-term commitment with the ASP, pick a plan and company that can ensure your safety and security over the years.
- Decide on Corpus Investment: When you retire, you can invest anywhere from 40% to 100% of your corpus in annuity. You must balance your need for immediate cash flow with the desire for a higher pension.
Remember, the more you invest, the higher your pension.
- Choose the Right NPS Annuity Scheme: Your choice of scheme depends on how much your family relies on your pension. If your spouse and family don’t depend on your income, consider a lifetime income scheme.
You must keep in mind that pension amounts may decrease if you choose options like providing for your spouse or returning the principal amount to your nominee.
Conclusion
An annuity deposit scheme lets you contribute to an annuity provider for guaranteed payments in retirement. Whether you want to ensure a steady income for yourself and your spouse or leave a lump sum for your children, there’s an annuity option for you.
FAQs|National Pension Scheme (NPS) Annuity
An annuity in NPS is a regular income stream that a subscriber receives after retirement, ensuring financial stability.
No, you can withdraw 60% of the accumulated NPS corpus at retirement and purchase an annuity with the remaining 40%.
On retirement, you can withdraw 60% of the corpus as a lump sum and use the remaining 40% to purchase an NPS annuity. If the total corpus is ₹5 lakh or less, you can withdraw it all.
An annuity in NPS is designed to provide a regular pension post-retirement and cannot be withdrawn as a lump sum.
Upon the death of an NPS subscriber, the entire accumulated pension wealth can be claimed by the nominee or legal heir. If the subscriber has already purchased an annuity and passes away, the spouse or next eligible family member can continue to receive the annuity payments.
To convert your NPS to an annuity, you must first exit from NPS and then allocate a minimum of 40% of your corpus to purchase an annuity plan.
Source- npscra.nsdl.co.in livemint.com indiapost.gov.in
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Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.