What is Annuity in NPS – Features and Benefits of NPS Annuity

Retirement is regarded as the golden period of one’s life. However, to make sure that it stays that way, you must have steady income coming in throughout your retired life. For steady income, you can trust the National Pension Scheme (NPS).  

If you want to make your retirement the best time of your life, start investing in beneficial retirement schemes soon. The National Pension Scheme is one such plan managed by Pension Fund Regulatory and Development Authority (PFRDA) that aims at securing the retired lives of individuals. Under this plan, it is mandatory for the policyholder to comply by the lock-in period until they turn 60-years old.

Under NPS, the applicant can select the fund and the asset class to invest the fund. NPS is not a mere fund accumulated retirement policy. Rather, it provides the policyholder with a lump-sum amount at the time of retirement as well as allow annuity on a regular basis once they are retired. So, under this policy, 40 % of the fund is mandatorily invested in the annuity NPS scheme.

Also Read: Difference between National Pension Scheme and Atal Pension Yojana

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Let’s take a look at what is annuity in NPS or annuity meaning in NPS and how the plan serves beneficial for the retired individuals.

What is Annuity in NPS?

Annuity in NPS is an investment option. It presents regular annuity payments to the investor for a particular period of time or for life time.  To ensure the financial stability of the retired individuals, NPS has introduced the annuity schemes to its plans.

From the total corpus investment under NPS annuity plans, 60% can be received as lump sum money after retirement, while the remaining 40 % is received as regular pay or annuity every month after retirement to the investor and to his/her spouse after the death of the investor.

Features of Annuity in NPS

There are various things to consider when discussing annuity in NPS. It is better to know all the aspects of NPS before buying a plan so that you can avail the best annuity plan for NPS. Below are some features of annuities in NPS:

• The policyholder under NPS annuity has to keep a minimum amount of 40 % of the corpus for investment purpose
• If a policyholder wants to surrender an NPS plan before the age of 60, they must use 80 % of the corpus so that they remain eligible for the regular annuities.
• The annuities under NPS are offered by PFRDA empanelled annuity service providers
• Annuity plans are of five types which people can invest in
• The policyholder under this scheme receive annuity for life
• The annuity for life is transferred to the spouse after the death of the policyholder
• In case of death of spouse, the annuity for life is returned to the dependent parents or kids of the policyholder
• The earnings received as annuity are taxable under NPS, while the corpus lump sum is tax-free.

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Advantages of Annuity in NPS

Annuity in NPS serves as a blessing for many retired people. Here are some benefits of the annuity scheme in NPS:

• It allows better management of money – For many people who are not knowledgeable enough to handle large corpus, NPS serve as a best policy. These people find it difficult to handle large sums of money or to use them to get regular and steady income. Further, they are also scared to use their retirement money in not so profitable options.

With NPS the risk of going out of money by investing in bad schemes is lowered to a great extent because NPS mandates that annuity should be purchased using the 40% of corpus to make it stable with a regular monthly income for entire retired life.

• It saves individuals from financial risks after re-investment – Coming in of a steady income on a monthly basis after retirement is highly beneficial for retired people and an annuity in NPS assures that. Unlike in case of other short term policies, annuities allow steady rate of interest on their reinvestment fund and eliminates it.
• No Cap Investment – Most retirement plans come with a specific investment cap. Hence, one cannot invest beyond the maximum cap fixed for particular plans. However, such investment caps are not compulsory for annuity in NPS.
• Taxability – You may note that the 60 % corpus under NPS is not taxable. However, the annuity earnings you receive are taxable. However, looking at the benefits of NPS, it can be said that despite tax disadvantages, annuity in NPS serves as an advantageous project.

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