What are the annuity options under New Pension Scheme : Hello Friends, Welcome to npsvsupscalculator.com. In this article, we will learn about the different types of annuity plans available under NPS upon retirement, as well as from which Annuity Service Providers these annuities should be purchased, and other related details.
Key features of Annuity Options under NPS
All government employees, whether from state or central government, who are covered under the National Pension Scheme (NPS), are required to purchase an annuity with at least 40% of their total accumulated corpus amount upon retirement. Additionally, they can withdraw up to a maximum of 60% of their corpus as a lump sum, which is exempt from income tax.
Based on the annuity value and the annuity return rate, you will receive a monthly pension. You must purchase the annuity from one of the 15 listed Annuity Service Providers empaneled with the Pension Fund Regulatory and Development Authority (PFRDA) like like LIC, HDFC Life, SBI Life, or ICICI Prudential etc. Visit PFRDA Website
Annuity rates vary based on several factors, including the type of annuity plan, the Annuity Service Provider (ASP), the subscriber’s age, the corpus amount, and market conditions.
What are the annuity options under New Pension Scheme -NPS?
The following are the most common annuity variants available under the National Pension System (NPS):
(a)Annuity for Life with Return of Purchase Price on Death
- The subscriber receives annuity payments throughout their lifetime.
- Upon the subscriber’s death, annuity payments cease, but the purchase price (the amount paid to the Annuity Service Provider) is returned to the nominee or legal heirs.
(b) Annuity Guaranteed for 5, 10, 15, or 20 Years and for Life Thereafter.
- On Death during the Guarantee Period: The subscriber receives annuity payments while alive. If the subscriber dies during the guaranteed period, the nominee receives annuity payments until the end of the guaranteed period, after which payments stop. The purchase price is not returned to the nominee or legal heirs.
- On Death after the Guarantee Period: The subscriber receives annuity payments for life, even beyond the guaranteed period. Payments cease upon the subscriber’s death, and the purchase price is not returned to the nominee or legal heirs.
(c) Annuity Payable for Life:
- The subscriber receives annuity payments throughout their lifetime.
- Upon the subscriber’s death, payments stop, and the purchase price is not returned to the nominee or legal heirs.
(d) Annuity for Life Increasing at a Simple Rate of 3% p.a.
- The subscriber receives annuity payments for life, with the payment amount increasing annually at a simple rate of 3% to account for inflation.
- Payments cease upon the subscriber’s death, and the purchase price is not returned to the nominee or legal heirs.
(e) Annuity for Life with 50% of the Annuity to the Spouse on Death of the Subscriber:
- The subscriber receives annuity payments while alive.
- After the subscriber’s death, the spouse receives 50% of the annuity amount for their lifetime.
- Payments stop upon the spouse’s death. If the spouse predeceases the subscriber, annuity payments cease upon the subscriber’s death.
- This variant can be chosen with or without the return of purchase price.
(f) Annuity for Life with 100% of the Annuity Payable to the Spouse on Death of the Subscriber:
- The subscriber receives annuity payments during their lifetime.
- After the subscriber’s death, the spouse receives 100% of the annuity amount for their lifetime.
- Payments stop upon the spouse’s death. If the spouse predeceases the subscriber, annuity payments cease upon the subscriber’s death.
- This variant can be chosen with or without the return of purchase price.
Important Notes:
Spouse Inclusion: Subscribers can include their spouse in any of the above variants, where applicable.
Availability: Not all Annuity Service Providers (ASPs) offer every variant; availability varies by ASP.
Pricing Annuity: pricing differs across ASPs, depending on their rates and terms.
Examples of NPS Annuity Plan
Some examples of annuity plan types are provided below to help you understand them more easily:
Example: Suppose an employee, A, purchases an annuity worth ₹10,00,000 from an Annuity Service Provider (ASP) upon retirement. Let’s also assume that all Annuity Service Providers offer a common annuity rate of 6%.
Pricing: Annuity rates typically range from 5.5% to 7.8%, varying based on the ASP, your age, and the size of the corpus.
1. Annuity with Return of Purchase Price (ROP): Annuity Lower rates (e.g., 5.5–6.5%) because the ASP must return the corpus to the nominee after the subscriber’s death.
Corpus Amount: ₹10 lakh
Rate: 5.8%
Pension: (10,00,000 × 5.8%) ÷ 12 = ₹4,833 per month
If employee A passes away at age 80, the total amount received over 20 years = 4,833 × 12 × 20 = ₹11,59,920. After this, their nominee receives a lump sum of ₹10 lakh back.
2. Life Annuity: Higher rates (e.g., 6–7%) because payments stop upon the subscriber’s death, with no further obligations.
Corpus Amount: ₹10 lakh
Rate: 6.5%
Pension: (10,00,000 × 6.5%) ÷ 12 = ₹5,417 per month
If employee A passes away at age 80, payments stop after their death, and the purchase price is not returned. The total amount received over 20 years = 5,417 × 12 × 20 = ₹13,00,000.
Click here For NPS Annuity Pension Calculator and check the estimated pension amount based on the Common Annuity Plan, Annuity service providers and annuity rate.