NPS requires you to necessarily buy an annuity with part of your corpus. Here are the various annuity options that you can choose from, along with a list of annuity providers.
27-Aug-2021 •Aakar Rastogi
It is mandatory for subscribers of the National Pension System (NPS) to buy an annuity plan with at least 40 per cent of their corpus at the time of exit on attaining the age of 60 unless the total corpus does not exceed Rs 5 lakh. The remaining 60 per cent of the corpus can be withdrawn as a lump sum and is tax-free. However, if a subscriber opts to exit prematurely before the age of 60, he needs to utilise at least 80 per cent of the corpus to buy an annuity plan and only 20 per cent of the corpus can be withdrawn as a lump sum.
Buying an annuity plan means that you will be investing the money with a company, usually an insurance company and in return, the company promises to pay you a certain amount every month or at the chosen frequency to ensure that the subscriber continues to get some sort of regular income after his retirement. Needless to say, the insurance company adds some amount to the corpus invested with the company as a return for our investments with it.
Some people tend to misuse the huge corpus that they get on retirement and often end up spending more in initial years. As a result, their later years of retirement are exposed to old-age poverty. This is one reason why NPS has made it mandatory for subscribers to utilise a part of the corpus to buy an annuity plan during the exit so that the subscriber gets only a certain amount every month to spend. The main objective of NPS is to secure the golden years of life financially. However, whether or not buying an annuity product is the most suitable way of deriving regular income is the subject of a separate discussion that we will do some other day.
Although annuity plans are sold by many insurance companies, an NPS subscriber can buy it only through one of the 12 companies empanelled with the Pension Fund Regulatory & Development Authority (PFRDA). The following is the list of Annuity Service Providers (ASPs) that are currently empanelled with PFRDA.
|S. No||Insurance companies empanelled with PFRDA as ASPs|
|1||SBI Life Insurance Co. Ltd|
|2||Life Insurance Corporation of India|
|3||Star Union Dai-ichi Life Insurance Co. Ltd|
|4||ICICI Prudential Life Insurance Co. Ltd|
|5||HDFC Life Insurance Co Ltd.|
|6||IndiaFirst Life Insurance Co Ltd|
|7||Edelweiss Tokio Life Insurance Co. Ltd (Annuity product is not yet operational)|
|8||Bajaj Allianz Life Insurance Co Ltd.|
|9||Canara HSBC Oriental Bank of Commerce Life Insurance co Ltd.|
|10||Kotak Mahindra Life Insurance Co Ltd.|
|11||Tata AIA Life Insurance Company Limited|
|12||Max Life Insurance Company Limited|
In addition to choosing the insurance company to buy their annuity plans, NPS subscribers need to decide the type of annuity they want to purchase at the time of exit. Different types of annuities are available, with some providing a fixed amount every month throughout your life, while some providing the said income to the subscriber's spouse after the subscriber's death. The following are the major types of annuity plans available for NPS subscribers.
Wondering how much monthly income would you get under each option? Look at the following table which has been sourced from the NSDL website for a 60-year old who has decided to buy an annuity with Rs 40 lakh. NSDL is the Central Record Keeping Agency (CRA) for NPS. We have assumed the age of the spouse to be 57. The same link can be used to know how much pension one would get under various options on investing a different amount.