The annuity escape route

Last week, the Pension Fund Regulatory and Development Authority made a significant change to the National Pension System. For non-government subscribers, the mandatory annuity purchase at retirement has been reduced from 40 per cent of the corpus to just 20 per cent. You can now withdraw up to 80 per cent as a lump sum. If your corpus is under Rs 8 lakh, you needn't buy any annuity at all. The financial press has covered this as ‘greater flexibility for subscribers’, which it certainly is. But there's a more interesting way to read this development. When a regulator reduces the mandatory purchase requirement for a product from 40 per cent to 20 per cent, it's essentially saying the product isn't working as intended. And annuities in India, to put it plainly, are not working. Consider the basic economics of an annuity. You hand over a lump sum to an insurance company at retirement, and they promise to pay you a fixed monthl