The National Pension System (NPS) has gained significant popularity as a retirement choice in India. NPS allows individuals to accumulate a retirement corpus during their working years, enabling them to withdraw a portion as a lump sum upon exit while investing the remaining amount in an annuity scheme for a steady monthly income.
According to the Handbook of NPS 2023, a total of 1,09,344 subscribers have opted for annuity plans since the inception of NPS. Among them, 70% have chosen the Annuity for Life with Return of Purchase Price (ROP) plan. This plan ensures that the subscriber receives annuity income throughout their lifetime, with the principal amount transferred to a nominee upon their demise.
While there are 15 types of annuity plans available, the “Annuity for Life with ROP” plan stands out as the most popular among pensioners. For instance, if a private sector NPS subscriber aged 60 invests Rs 10 lakh in this plan today, they can receive a monthly pension of approximately Rs 5,471 for their lifetime. In the event of the subscriber’s death, the annuity payment ceases, and the Rs 10 lakh principal amount goes to the nominee.
The Joint Life Annuity with Return of Purchase Price plan, where the spouse receives the benefit, ranks as the second-most popular choice among subscribers.
It is worth noting that NPS mandates that 60% of the accumulated corpus can be withdrawn at the age of 60, while the remaining 40% must be invested in an annuity scheme for a regular pension. In the case of premature exit, 80% of the corpus needs to be invested in an annuity plan.
While investments and capital gains in NPS are tax-free upon withdrawal, the pension amount received is subject to income tax based on the applicable slab for NPS subscribers.
NPS subscribers can select from various schemes offered by 15 empanelled life insurance companies, known as Annuity Service Providers (ASPs). These annuity schemes guarantee a regular income stream for NPS subscribers after their retirement, ensuring financial security in their post-working years.
Annuity Service Providers (ASPs) present various annuity options, with the following being the most favored:
- Annuity for Life with Return of Purchase Price: Subscribers receive annuity throughout their lifetime, and upon their demise, annuity payments cease while 100% of the purchase price is given to the nominee(s).
- Joint Life Annuity with Return of Purchase Price: Subscribers enjoy annuity for life, and in the event of their death, the annuity is payable to the spouse for their lifetime. After the spouse’s demise, annuity payments cease, and 100% of the purchase price goes to the nominee(s).
- NPS – Family Income Option with Return of Purchase Price: Subscribers receive annuity for life, and upon their death, annuity payments are made to the spouse (if any) for their lifetime. After the spouse’s demise, annuity is paid to the dependent mother and then to the dependent father of the subscriber. Upon the last annuitant’s death, annuity payments cease, and 100% of the purchase price is returned to the surviving children of the subscriber or the legal heirs, as applicable.
- Annuity for Life without Return of Purchase Price: Subscribers receive annuity for life, and when they pass away, annuity payments cease without any further amount payable.
- Joint Life Annuity without Return of Purchase Price: Subscribers receive annuity for life, and upon their death, annuity payments are made to the spouse for their lifetime. After the spouse’s demise, annuity payments cease without any further amount payable.
ASPs determine the rates for each annuity plan, and the chart below illustrates the average annuity amount paid by 15 ASPs to a private sector subscriber at the age of 60, considering a purchase price of Rs 10 lakh. The amounts are calculated based on the current rates provided by the ASPs.
