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Annuity from National Pension System - NPS

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

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Annuity from NPS

What Are Pension Plans?

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.

What is NPS?

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.


What is Annuity in NPS?

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.


How Do I Purchase Annuity from NPS?

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.

Annuity Plans

Benefits of Annuity in NPS

Annuity in NPS offers retirees the following benefits:

Payment Flexibility when investment in savings plan

Better Money Management

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.

Consider the Risk when purchasing Savings plan

No Reinvestment Risk

The annuity rate is fixed at inception and is guaranteed for whole life, which eliminates the reinvestment risk.

Charges to check when buying savings plan

No Cap on Investment

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.

Features of Annuities in NPS

Here are some important features of annuities in NPS that individuals must know:
1

The annuity amount depends on the purchase price, prevailing interest rates, and type of plan selected.

2

Individuals can choose the frequency of payouts, such as annually, half-yearly, monthly or quarterly.

3

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.

4

The annuity income is taxable as per prevailing tax laws. However, individuals can claim deductions under Section 80C against investments made towards the plan.

What Happens to NPS at Maturity?


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.

Why Should I Buy an Annuity Plan ?

Why Should I Buy an Annuity Plan ?

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.

What Are the Pre-Requisites for NPS Exit?

The subscriber must ensure the following before initiating an online exit request:
1

Claim ID is available for PRAN

2

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.

3

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.

What Are the Different Exit Types Under NPS?

There are three types of exit under NPS:

1

Superannuation Exit

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.

2

Premature Exit

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.

3

Exit Due to Death

 

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.

How Can I Initiate an Online Withdrawal Request?

1

Online Withdrawal request can be initiated by the subscriber

2

Subscriber will initiate online withdrawal request in CRA system (www.cra-nsdl.com) by logging in with PRAN as User ID & password

3

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.

4

Subscriber needs to capture details such as lump sum withdrawal percentage, annuity percentage, Annuity Service Provider, annuity scheme, etc

5

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.

6

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.

7

Request needs to be verified and authorised in the CRA system by the associated Point of Presence (POP)

8

On successful authorisation of the request by the POP, the request will get executed in the CRA system

More about the National Pension System (NPS)

Annuity in NPS- FAQ's

We’ll tell you everything you need to know about Annuity in NPS

1 Can I purchase an annuity plan with more than 40% of my NPS corpus?

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.

2 When I turn 60, can I defer purchasing an NPS annuity plan?

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.

3 How does my monthly contribution affect my annuity?

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.

4 How will I receive my annuity?

Your ASP will pay the annuity amount to you directly via a bank transfer.

5 What are the different investment choices provided to subscribers in NPS?

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.

6 What are the various asset classes in which the funds are invested in NPS?

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).

7 What is the default NPS annuity scheme?

The default annuity scheme is the NPS Family Income. It covers the subscriber and their spouse, mother, and father.

8 What is the period of payment of annuity in NPS?

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.

9 Can a subscriber change the annuity plan or annuity service provider later?

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.

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.

ARN - INT/ED/10/23/5308