Choose Annuity After NPS Maturity

Table of Content

1. What is an Annuity Plan?

2. What is an NPS Account?

3. What Happens When Your NPS Account Matures?

4. Annuity Options Available After NPS Maturity

5. How to Choose the Right Annuity Plan After Maturity of Your NPS Account?

6. Factors to Consider When Choosing an Annuity Plan After NPS Maturity

7. Common Mistakes to Avoid While Choosing an Annuity Plan

8. Steps to Purchase an Annuity Plan After NPS Maturity

9. Conclusion

10. FAQs about How to Choose an Annuity Plan After NPS Maturity

What is an Annuity Plan?

An annuity plan refers to a financial instrument where the money invested is paid out at regular intervals over a specified period or for life, depending on the annuity option. Annuity schemes are often used to provide an income source to investors after retirement.

The investor makes a lump sum payment to the scheme provider, who then pays as per the chosen annuity scheme. Payments can be monthly, quarterly, half-yearly or annual.

Annuities are also crucial for the NPS. During retirement, eligible NPS subscribers can utilise a portion of the corpus built up under NPS to purchase an annuity from an eligible Annuity Service Provider (ASP), as per applicable terms and NPS rules. Income will be paid as per the chosen annuity, and it may depend on the amount invested in the annuity.

What is an NPS Account?

The NPS is a retirement savings investment option which helps to build a corpus during working years. Subscribers make contributions regularly. These contributions help build a retirement corpus over the long term.

At retirement, you can withdraw a portion of the accumulated corpus. You can use the rest to purchase an annuity as per current NPS rules. Thus, choosing the right annuity plan is an important step to ensure a regular income after the NPS matures.

Annuity tables can also help investors understand and compare the potential income of different annuity options based on the applicable terms and rates.

What Happens When Your NPS Account Matures?

NPS maturity is essentially the regular exit from the NPS at the relevant retirement age. It is generally 60 years for the normal exit process. At this stage, the subscriber can withdraw a part of the corpus as a lump sum. The subscriber must also use the prescribed portion to buy an annuity, as per the existing NPS exit rules.

The annuity provides a regular income after retirement, thus helping subscribers meet their recurring financial needs. Subscribers can select from the different annuity options provided by empanelled Annuity Service Providers (ASPs) as per their income needs and preferences.

Knowing these options can help you make a better decision while choosing an annuity after NPS maturity.

Annuity Options Available After NPS Maturity

There are different types of annuities available after your NPS maturity period ends. Each of them differs from the others in terms of spouse benefits, pension payouts, and return of purchase price. Here are the different annuity plans:

1. Life Annuity

This option may suit retirees who primarily want a steady lifelong income and do not require the annuity to provide continued income to a spouse after their death. However, family responsibilities should be considered carefully.

For instance, if a retiree's spouse is financially dependent on them and the retiree passes away unexpectedly, a pure life annuity that ends on death may leave the spouse without that income stream. In such situations, existing life insurance protection and other family assets should also be considered while deciding whether a single-life annuity is appropriate.

The following group of individuals may find this plan useful:

- Risk-averse retirees

- People without a pension

- Individuals who are worried about outliving their savings

The table below shows the key benefits and limitations of this plan:

Advantages	Limitations
Guaranteed income	Low liquidity
No focus on the market	Lower growth
Availability of riders	Irreversible plan

2. Life Annuity with Return of Purchase Price

In a life annuity plan with return of purchase price, the annuitant receives a monthly pension for the rest of their life. On his or her death, the nominee gets the purchase price as per the terms of the policy.

It is designed for people who want to generate a reliable retirement income and pass on an inheritance to their family. However, the annuity payments may be relatively smaller than those offered under some other annuity options.

3. Joint Life Annuity

   A joint life annuity pays the annuitant a regular annuity income for the rest of their life. The annuity payments continue to the spouse after the annuitant’s death, according to the plan chosen. This can help someone who wants to make sure their spouse has ongoing financial security from retirement plans.

   Some of the common benefits of a joint life annuity plan are:

   - Both primary and secondary annuitants are guaranteed regular payments under a combined annuity plan. This continues until the survivor passes away.

   - Following the death of the primary annuitant, the survivor receives 50%, 75%, 100%, or another predetermined percentage of the initial annuity payout that the primary annuitant received.

   - Joint annuity programs offer payout intervals that may be tailored to the annuitant's needs.

   - A shared life annuity gives the partner financial stability.

4. Joint Life Annuity with Return of Purchase Price

This annuity plan will give the annuitant a periodic income in a subscriber’s lifetime. After his death, the income continues to the surviving spouse, depending upon the plan selected and the terms of the policy. On the death of both annuitants, the purchase price is refunded to the nominee or legal heir as per the policy terms.

This option provides both financial protection for the spouse and a benefit for estate planning. This makes it appropriate for couples who want to continue their retirement income stream and leave a financial legacy for their family.

However, the annuity payouts are likely to be somewhat lower than those available under some other annuity options because of the additional benefit of returning the purchase price.

5. Increasing Annuity

In an increasing annuity plan, the annuity amount grows regularly as per the predefined growth rate, depending on the chosen type of annuity. For instance, some of the types may provide annual growth rates of 3% or 5%. The growing payments may serve as a partial compensation for inflation and increased costs in the retirement process.

In any case, the starting annuity payment is usually less than in the case of a regular level annuity since the payment amounts grow over time.

For example, consider someone approaching retirement who currently spends ₹40,000 - ₹50,000 each month on household expenses, medicines and other recurring needs. Even if these expenses are manageable today, their cost could increase considerably over a long retirement.

An increasing annuity may therefore be considered when the retiree expects their income requirement to rise over time. However, the extent to which increasing payouts offset higher living costs will depend on the actual inflation rate and the predefined rate at which the annuity increases.

How to Choose the Right Annuity Plan After Maturity of Your NPS Account?

To choose the right annuity plan after maturity, here are the tips you should follow:

1. Assess Your Retirement Income Needs

You must assess your retirement income needs since it enables you to choose the right NPS annuity option. The first step involves calculating the amount of money you need each month. You must consider all current income sources and your future financial obligations.

These include health care needs or taking care of your family members. This will give you an idea of which annuity payment stream will suit your retirement income needs best.

2. Compare Annuity Plans from Different Providers

You can see the list on the Pension Fund Regulatory and Development Authority (PFRDA) Empanelled Entities list. This will help you to identify the available schemes on the basis of annuity rates, payment structures, joint life option, return of purchase price, among other features of the scheme.

A slight variation in annuity rates will make a difference to the income generated from your NPS corpus.

3. Evaluate Payout Options and Frequency

Evaluating the payout options can help you get your income after retirement to match your expense patterns. Payouts made monthly can be ideal in catering to your recurring expenses like utility bills and medications. However, payouts on a quarterly or semi-annual basis can cater to periodic expenses.

Annual payouts can be appropriate if one wants a lump sum to pay off financial obligations every year. Matching your payout frequency to your expenses will enable better management of your retirement funds without depleting them.

4. Review Plan Features and Benefits

It is crucial to evaluate the different features of annuities before choosing an annuity that suits your requirements for retirement under the NPS scheme. Consider aspects like spouse benefit, return of premium, increasing annuities, nomination facility, and other available benefits.

Evaluation of the above features helps in selecting an annuity that meets your retirement income needs and suits your family's needs.

5. Read the Terms and Conditions Carefully

Before buying an annuity policy, make sure that you read through the policy, eligibility requirements, payment terms, exclusions, refund of the purchase price, and other relevant clauses. This will enable you to choose an annuity policy that suits your requirements without causing problems in future.

Factors to Consider When Choosing an Annuity Plan After NPS Maturity

1. Inflation and Future Cost of Living

When opting for an annuity plan using your NPS maturity funds, you should consider inflation and future costs. Due to rising expenses, a fixed pension payout can erode its value and become less effective to meet your future costs for food, medicines, medical care, etc.

According to The Economic Times, as of 2025, hospitalisation costs in India have almost doubled compared to 2017-18, increasing by 77% in urban India and 97% in rural regions. Thus, in choosing an annuity, you need to evaluate how well it meets your future costs.

2. Financial Security for Your Spouse and Dependents

Upon maturity of your NPS, it is essential to invest at least 40% of your total corpus in an annuity plan, according to NPS guidelines. While making such an investment in annuity plans, you must consider the financial requirements of your spouse and dependents, so that they will be taken care of financially after your death.

The annuity plan with the survivorship benefit will be able to serve such a purpose. Otherwise, the payments will stop upon your death.

3. Taxation of Annuity Income

While choosing an annuity plan after the maturity of your NPS, it is essential to consider the taxation of NPS annuity since pension payments are completely taxable in accordance with your applicable income tax bracket for each year.

Even though 60% of your first-time withdrawal of the NPS money is tax-free^****, with your annuity being tax-free, the future pension payments are not tax-free.

4. Your Health, Age, and Life Expectancy

Your age, health status, and the period in which you expect to live after retirement could play a critical role in choosing an appropriate annuity plan. Such consideration will enable you to determine how much income you require during retirement.

It is also worth considering unexpected health events while building your broader financial plan. A serious illness can affect finances even before retirement begins. Life insurance and term insurance plans may offer additional protection features depending on the policy selected. For example, term insurance plans provide acceleration of the death benefit upon diagnosis of a specified terminal illness, subject to applicable policy conditions.

5. Return of Purchase Price and Estate Planning

Considering the return of purchase price is significant in terms of estate planning because the purchase sum may be paid back to the nominee after the death of the annuitant, according to the policy provisions.

You can also consider this if financial inheritance is one of your priorities when choosing an annuity plan, along with your need for income in retirement.

Common Mistakes to Avoid While Choosing an Annuity Plan

1. Selecting a Plan Based Only on Higher Payouts

Selecting an annuity solely based on its offering a greater pension may not always suit your retirement goals. The greater pension could be accompanied by disadvantages like a lack of flexibility, the impact of inflation, and so on. Hence, you must analyse the characteristics of the annuity to decide.

2. Overlooking Spouse and Nominee Benefits

Not paying attention to the benefits for your spouse or nominees in your annuity plan will jeopardise the safety of your family. In a single-life plan, payment stops on your death. If you include joint-life payments or the return-of-purchase-price option, it will ensure uninterrupted income.

3. Not Comparing Multiple Annuity Options

Not evaluating the different annuity options available to you means you might be overlooking an annuity that would have better suited your needs. It is important for you to compare the various annuities, benefits, payout options, fees, and policies available from different ASPs.

As a result, you will be able to choose an annuity option that suits your retirement income needs and objectives.

Steps to Purchase an Annuity Plan After NPS Maturity

To buy an annuity from NPS after its maturity period is over, the subscriber needs to start the relevant procedure of exiting from the NPS portal. Based on the type of exit being made, the relevant amount from the corpus of NPS may need to be used for buying an annuity. Here is the step-by-step process on how to choose an annuity plan after NPS maturity:

1. Make your exit request using the relevant NPS process and enter all details.

2. The CRA will help to verify and process your NPS exit request along with the supporting documentation.

3. Determine the portion of the NPS corpus required to be used for purchasing an annuity under the applicable exit rules.

4. Choose an ASP empanelled by PFRDA.

5. Compare the annuities, payout frequency, benefits for nominees or joint annuitant and annuity rates.

6. Complete the mandatory KYC and documentation formalities. These will depend upon the ASP and the situation. They could include identity and address proof, bank details and NPS details.

7. The applicable portion of the NPS corpus will then be transferred to the selected ASP, which will issue the annuity as per the annuity option chosen.

8. Once you get your annuity after completing the formalities, you will start receiving payments at regular intervals.

The amount of annuity received will depend on factors such as the amount of money invested in buying the annuity, the age of the annuitant, the chosen annuity plan, and the available rate at that time. Various guidelines of the PFRDA, NPS exit method, and requirements of the chosen ASP will determine the procedure for this.

Conclusion

Knowing how to choose an annuity plan after NPS maturity is an essential part of your retirement plans. It depends on various factors such as your income requirement, financial obligations, age, liquidity requirements, nominees' benefits, and preferred frequency of payout.

More importantly, retirement planning should look beyond income alone. An annuity can help create a regular income stream during retirement, while life insurance or term insurance protection can address different financial risks for your family, depending on the coverage already in place.

Evaluating these elements together can help you create a retirement strategy that considers both your own income needs and your family's financial security.

FAQs about How to Choose an Annuity Plan After NPS Maturity

1. Which annuity option is best after NPS maturity?

Joint life annuity with return of purchase price could be an appropriate choice for those retirees who seek periodic payment not only for themselves but also for their spouse. At the same time, they want the purchase price to be returned to the nominee after the death of both annuitants.

2. What factors should be considered before choosing an annuity plan after NPS maturity?

Before choosing an annuity plan, you have to consider factors like inflation, financial security for your dependents, taxation of annuity income, your health and age, and return of purchase price.

3. How to compare annuity plans offered by different Annuity Service Providers?

When comparing various ASP annuity plans, you must consider factors like the rate of return, the type of annuity plan offered, the regularity of the payment periods, and the credibility of the ASP.

4. Which annuity option offers financial security for a spouse?

A joint life annuity plan offers financial security for a spouse. It will continue providing payments without any interruption even after the death of one of the individuals.

5. Does the choice of annuity option affect the pension amount?

Yes, different annuity options pay different amounts depending on how long the income will be paid and whether it will be paid out to spouses or dependents.