Learn About the Rules Regarding Annuities in National Pension System

As per the National Pension System (NPS) rules, subscribers need to buy an annuity at the time of exit from NPS. Buying an annuity means that your money will be invested with an insurance company, and you will receive monthly payments as a return from your investment. This article explains finer details on the annuities process, the service providers involved, and various annuity modes so that you can make an informed decision as an investor.

Overview of Annuity Service Providers under NPS

Annuity Service Providers are life insurance companies that are licensed and regulated by the insurance regulatory body IRDAI. These companies transact annuity businesses in India and are empanelled by PFRDA to serve the NPS subscribers’ annuity requirements. At present, the following 12 ASP’s are providing annuity services to NPS subscribers:

  1. SBI Life Insurance Co. Ltd
  2. Life Insurance Corporation of India
  3. Bajaj Allianz Life Insurance Co Ltd.
  4. Star Union Dai-ichi Life Insurance Co. Ltd
  5. HDFC Life Insurance Co Ltd.
  6. ICICI Prudential Life Insurance Co. Ltd
  7. Canara HSBC Oriental Bank of Commerce Life Insurance co Ltd.
  8. India First Life Insurance Co Ltd
  9. Edelweiss Tokio Life Insurance Co. Ltd 
  10. Kotak Mahindra Life Insurance Co Ltd.
  11. Max Life Insurance Company Limited
  12. Tata AIA Life Insurance Company Limited

Type of Annuities under NPS

The following are the annuities that are available in the Indian market in general. However, ASP’s also offer variants that are a combination of some of the below-mentioned types. Anyone option can be chosen. Important to note that once an option is chosen, it cannot be altered. The below table explains the various annuity types and their treatment of the annuitant’s death:
S. No.  Annuity Type Annuity Treatment on Death of Annuitant
1 Annuity/ pension payable for life at a uniform rate. Annuity ceases after the annuitant dies.
2 Annuity payable for 5, 10, 15 or 20 years certain and after that as long as the annuitant is alive.
  • On the annuitant’s death during the guaranteed period – The nominee receives annuity till the end of the guaranteed period. The annuity ceases after that time. 
  • On death after the guaranteed period – Annuity ceases.
3 Annuity for life with return of purchase price on death of the annuitant. Annuity ceases after the death of the annuitant, and the purchase price is paid to the nominee.
4 Annuity payable for life increasing at a simple rate of 3% p.a. Annuity ceases after the death of the annuitant.
5 Annuity for life with a provision of 50% of the annuity payable to spouse during their lifetime on the annuitant’s death. Payment of 100% annuity ceases after the annuitant’s death, and 50% of the annuity is payable to the surviving named spouse during their lifetime. If the spouse predeceases the annuitant, the annuity ceases after the death of the annuitant.
6 Annuity for life with a provision of 100% of the annuity payable to spouse during their lifetime on the annuitant’s death. Payment of annuity ceases after death of the annuitant, and full annuity is payable to the surviving named spouse during their lifetime. If the spouse predeceases the annuitant, the annuity ceases after the death of the annuitant.
7 Annuity for life with a provision of 100% of the annuity payable to spouse during their lifetime on the annuitant’s death. The purchase price will be returned on the death of the last survivor. Payment of annuity ceases after death of the annuitant, and full annuity is payable to the surviving named spouse during their lifetime. If the spouse predeceases the annuitant, the annuity ceases after the annuitant’s death, and the purchase price is paid to the nominee.

Other points about annuities

  1. If you wish to apply for withdrawal, you can submit your claim through any POP-SP’s to the NPS Claim processing cell (NPSCPC). 
  2. In case the subscriber does not select any option in the form, default options are as below: 
    • Default Annuity Service Provider: Life Insurance Corporation of India (LIC) 
    • Default Annuity Scheme: Annuity for life with a provision of 100% of the annuity payable to spouse during their life on death of the annuitant.” 
  3. There may be a situation where the corpus is insufficient to buy the default annuity variant and the default ASP. In that case, the subscriber has to compulsorily choose an ASP who offers an annuity at the available corpus in the subscriber’s account.
  4.  NPS authority has designed an annuity calculator for the benefit of subscribers in the respective websites of CRAs.

Conclusion

As we can see above, there is much flexibility available to the investor regarding the annuity service provider and the type of annuity. As an investor, you need to understand, evaluate and align the options available with your requirements. To support your analysis, you can also check the annuity calculator. These steps will help you make an informed choice and help you secure the sunset years of yourself and your family.
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