Individuals who subscribe to the NPS must use at least 40% of their accumulated corpus on superannuation to purchase an annuity, which will provide a steady source of income post-retirement. ...Read More
Pension plans are long-term savings schemes designed to build a financial cushion for retirement. They are essentially a form of insurance that guarantees a regular income once you stop working. These plans require you to contribute a portion of your income regularly while earning. The amount gets invested to generate returns over time. When you retire, the accumulated corpus provides a steady income, ensuring a financially secure post-retirement life.
National Pension System (NPS) is a pension plan administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), a pension fund regulator, created by an act of parliament.
The NPS seeks to inculcate a habit of saving for retirement amongst Indian citizens. It aims to find a sustainable solution to the problem of providing adequate retirement income.
Annuity refers to the regular income or monthly payment received from an annuity plan. Under the NPS, annuity provides a regular income to subscribers once they retire. The annuity amount depends on the amount invested, the type of annuity plan chosen and prevailing interest rates. Individuals who subscribe to the NPS must use at least 40% of their accumulated corpus to purchase an annuity on superannuation, which will provide a steady source of income post-retirement. The annuity plan can be purchased from an insurance company empanelled by PFRDA, including HDFC Life.
Before purchasing an annuity, the subscriber must first exit the NPS. An exit is defined as closure of the individual pension account of the subscriber under National Pension System. Depending on the type of your exit, you have to annuitize a portion of the accumulated corpus. HDFC Life is an IRDAI-licensed Life Insurance Company transacting annuity business in India and empanelled by PFRDA to service the annuity requirements of NPS subscribers. On successful exit from NPS, individuals can invest in annuity plans. The amount of funds depends on market-linked returns. Additionally, individuals must complete their KYC compliance before getting the annuity plan issued through the funds transferred, ensuring a regular guaranteed income for life.
A limited premium deferred annuity plan with flexibility to choose premium payment term, deferment period and annuity payout date.
UIN: 101N143V07
A Non-Linked Non-Participating Individual/Group Annuity Savings Plan with extensive benefits that can help you live your life after retirement without any financial worries!
UIN: 101N173V07
A single premium pension plan with single or joint life cover option to plan the financial security of 2 people
UIN: 101N118V11
A traditional Retirement Plan with guaranteed returns1
UIN: 101N084V36
Get Guaranteed2 Income during retirement at your desired frequency.
Benefit from higher annuity rates at purchase price of ₹ 2,50,000 or higher.
Get Return of Purchase Price upon death or critical illness3.
Choose your payout frequency– monthly, quarterly, half-yearly, or yearly.
A non-linked traditional annuity plan that offers you basic annuity options and provides you an opportunity to live life on your terms.
UIN: 101N141V03
Option to receive annuity as long as you or your partner is alive.
Return of Purchase Price option on death
Benefit of higher annuity rates for large purchase price.
No need to undergo medical examination
The annuity in NPS provides a regular and steady income for individuals post-retirement, making it easier for individuals to manage their finances and regular expenses.
The annuity rate is fixed at inception and is guaranteed for whole life, which eliminates the reinvestment risk.
The annuity in NPS does not impose any cap on the investment amount. Individuals can invest 100% of the annuitized NPS corpus for higher payouts after retirement.
The annuity amount depends on the purchase price, prevailing interest rates, and type of plan selected.
Individuals can choose the frequency of payouts, such as annually, half-yearly, monthly or quarterly.
Individuals can select between single life annuity or joint life annuity. With a join life annuity plan, their spouse continues to receive the annuity if anything happens to them.
The annuity income is taxable as per prevailing tax laws. However, individuals can claim deductions under Section 80C against investments made towards the plan.
On maturity, individuals can withdraw up to 60% of the accumulated corpus tax-free. They must invest the remaining 40% in an annuity plan to receive a regular income for the rest of their life.
The annuity amount you receive after retirement depends on the initial amount invested, the type of annuity scheme selected, and the rate of interest.
Annuity Service Providers (ASPs) are companies that maintain the annuity contribution of individuals through various schemes. The Pension Fund Regulatory and Development Authority (PFRDA) empanels IRDA-registered Indian Life Insurance companies to manage annuity funds and pension payments after you attain the age of 60 years or superannuation and take an exit. HDFC Life is a PFRDA-registered entity, offering annuity services to individuals once their NPS reaches maturity.
An annuity plan provides peace of mind and financial security during your golden years. Having an annuity helps you plan your finances and take care of regular expenses once you retire.
Claim ID is available for PRAN
PRAN is FATCA Compliant and subscriber details (such as PAN, address, contact details, bank details, nomination details etc.) are updated in NPS account. If required, the subscriber can update these details online in CRA or by submitting physical request to a POP.
The subscriber must submit the withdrawal request using OTP authentication/eSign using Aadhaar. Hence, valid mobile number and email ID of the subscriber should be registered in CRA to receive OTP as part of OTP authentication. Or, for eSign using Aadhaar, subscriber’s mobile number registered with Aadhaar should be valid to receive OTP as part of eSign.
There are three types of exit under NPS:
On reaching 60 years or superannuation age, at least 40% of the accumulated corpus is to be converted into annuity. The balance amount of maximum 60% is paid in lump sum to subscriber. In case total accumulated corpus is <= 5 lacs, subscriber can opt for 100% withdrawal.
Before reaching 60 years or superannuation age, minimum 80% of the accumulated corpus is to be converted into annuity. The balance amount of maximum 20% is paid in lump sum to subscriber. In case total accumulated corpus is <= 2.5 lacs, subscriber can opt for 100% withdrawal. However, non-government subscribers can exit the NPS only after completing 10 years in NPS.
For Government Subscribers
In case of death of subscriber, minimum 80% of accumulated pension corpus is to be converted into annuity in the name of the subscriber’s spouse, if any, and then to dependent mother and then to dependent father of the subscriber. The balance is paid as lump sum to the nominee or legal heir. In case total accumulated corpus is <= 5 lacs, nominee/legal heir can opt for 100% withdrawal. If none of the family members of the deceased subscriber (spouse, if any, mother, and father) are alive, then NPS corpus meant for issue of annuity shall be returned to the surviving children of the subscriber and in absence of children, the legal heirs of the subscriber as applicable.
For Non-Government Subscribers
The nominee/legal heir of the deceased subscriber shall have the option to purchase any of the annuities being offered upon exit, if they so desire, while applying for withdrawal of benefits on account of deceased subscribers’ Permanent Retirement Account. If the nominee/legal heir wishes to opt for annuity (pension), they are required to select the Annuity Service Provider (ASP) and annuity scheme in the Death Withdrawal Form.
Online Withdrawal request can be initiated by the subscriber
Subscriber will initiate online withdrawal request in CRA system (www.cra-nsdl.com) by logging in with PRAN as User ID & password
Subscriber will select the “Exit from NPS” Menu option. The registered details of the subscriber, such as PRAN, contact details, bank details, nominee details etc. will be auto-populated. All these details (except nominee details) will be non-editable.
Subscriber needs to capture details such as lump sum withdrawal percentage, annuity percentage, Annuity Service Provider, annuity scheme, etc
Subscriber will mandatorily upload the scanned copies of all the relevant documents such as KYC Documents (Identity & Address Proof), copy of PAN and copy of PRAN card/ePRAN, bank proof etc.
Subscriber is required to submit the request using OTP authentication/eSign. In case of OTP authentication, two distinct One-Time Passwords (OTPs) will be sent on the mobile number and email ID registered in CRA. Whereas in case of eSign, the OTP will be sent on the mobile number registered with Aadhaar.
Request needs to be verified and authorised in the CRA system by the associated Point of Presence (POP)
On successful authorisation of the request by the POP, the request will get executed in the CRA system
Any individual citizen of India (both resident and non-resident) between 18 and 70 (as on the date of submission of NPS application) can join NPS.
Upon successful enrolment, a Permanent Retirement Account Number (PRAN) is allotted to the subscriber under NPS.
Once the PRAN is generated, an email and SMS alert is sent to the registered email ID and mobile number of the subscriber by the CRA (Central Record Keeping Agency).
The subscriber contributes periodically and regularly towards NPS during their working life to create a corpus for retirement.
On retirement or superannuation, the corpus is made available to the subscriber with the mandate that at least 40% of the corpus must be invested into Annuity to provide a monthly pension post-retirement.
Subscribers make regular contributions to the NPS. The amount gets invested in various funds as per the subscriber’s choices and the returns are reinvested for exponential growth. Let’s better understand the process.
Regular Contributions
Every individual regularly contributes to their NPS account. Individual savings are pooled an invested by PFRDA-regulated and NPS Trust-administered fund managers known as Pension Fund Managers (PFMs). The PFM invests the corpus across four asset classes – equities (asset class E), corporate bonds (asset class C), government securities (asset class G), and alternate investment funds (investment class A). Subscribers can choose their asset mix across all four classes. However, PFMs will automatically limit an investor’s exposure to equities and alternate investment funds. Individuals cannot invest more than 75% of their funds in asset class E or more than 5% of their corpus in asset class A.
Subscribers can also choose the auto choice or life cycle investment option. Under such plans, the PFMs choose the fund allocation based on the investor’s age and their choice of aggressive, moderate or conservative auto choice. The auto choice investment option automatically reduces the investor’s exposure to high-risk investments over time to ensure a happy and secured retirement.
The contributes accumulate returns at varied interest rates based on the performance of individual PFMs.
Compounding
The returns generated by the investments get reinvested in the market, leading to compounding returns. Compounding helps with exponential growth in the long run.
Indian citizens can choose to open an NPS account online or offline.
To go the online route, they can visit the HDFC Pension website and choose the Buy NPS option.
To register offline, individuals can visit their nearest Point of Presence (PoP) or Point of Presence Service Provider (PoPSP).
The NPS can be broadly classified into two sectors – Government and Private.
Government Sector
Under Government sector, there are Central Government Employees and State Government Employees.
Central Government – These employees contribute towards pension from monthly salary along with contribution from the employer.
State Government – These employees also contribute towards pension from monthly salary along with contribution from the employer.
Private Sector
Under the Private Sector, there’s the corporate sector and the unorganised or All Indian Citizens sector.
Corporate Sector – The NPS Corporate Sector Model is the customised version of NPS to suit various organisations and their employees to adopt NPS as an organised entity within purview of their employer-employee relationship.
Unorganised Sector – Any individual not being covered by any of the above sectors has been allowed to join NPS architecture under the All Citizens of India sector from May 01, 2009.
Voluntary - A subscriber can contribute at any point of time in a financial year and also change the amount they want to set aside and save every year.
Flexible - Subscribers can choose their own investment options and pension fund and see their money grow.
Portable - Subscribers can operate their account from anywhere, even if they change their city and/or employer.
Regulated - NPS is regulated by PFRDA, with transparent investment norms and regular monitoring and performance review of fund managers by NPS Trust.
We’ll tell you everything you need to know about Annuity in NPS
Yes, individuals can purchase an annuity plan with more than 40% of the NPS corpus on superannuation. Using a higher percentage of your NPS corpus for your annuity could lead to higher income payouts and a steady income for the future.
Yes, individuals can defer withdrawing their NPS lump sum and purchasing an annuity on superannuation for up to three years from the day they complete 60.
The amount you put into your NPS earns returns and builds a corpus for your annuity. The monthly contributions you make could help build a larger corpus for higher annuity payouts once you retire.
Your ASP will pay the annuity amount to you directly via a bank transfer.
Individuals can choose the active or auto investment option when subscribing to the NPS. Under the active option, you get to choose how your funds gets invested and allocated across the different asset classes. When you select the auto option, the amount gets invested for you in a pre-defined manner based on your age.
The asset classes in the NPS are Alternate Asset Class (Asset Class A), Corporate Bonds (Asset Class C), Equity Shares (Asset Class E), and Government Bonds (Asset Class G).
The default annuity scheme is the NPS Family Income. It covers the subscriber and their spouse, mother, and father.
For single premium and immediate annuity plans, the minimum payable period can be 5, 10, 15, or 20 years. Once this period is over, the subscriber receives the annuity for life.
No, once you select an annuity plan and ASP, you cannot make any changes. It’s best to evaluate all your options before making a decision.
We help you to make informed insurance decisions for a lifetime.
1. As per Income Tax Act, 1961. Tax benefits are subject to changes in tax laws.
2. Amount of guaranteed income will depend upon premiums paid subject to applicable terms and conditions.
3. Available only under ‘Life Annuity with Return of Purchase Price on diagnosis of Critical Illness’ option.
4. In the case of Joint Life annuities the payout continues till either of the lives chosen in the policy is alive.
5.Subject to conditions specified u/s 80C of the Income tax Act, 1961.
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