NPS Annuity Choice: 5 Annuity Options, But Most Subscribers Prefer This

The National Pension System (NPS) provides subscribers with long-term financial security by offering a lump sum at the time of superannuation, with the remaining corpus to be mandatorily used for buying annuities to generate a regular monthly income. This is a mandatory feature of NPS, under which a minimum of 20 per cent of the corpus is mandated for annuities for all subscribers, except government model subscribers. They need to keep at least 40 per cent of the corpus for buying annuities.

Until recently, a 40 per cent annuity was mandatory for all, but recently, the Pension Fund Regulatory and Development Authority (PFRDA) changed the exit rules and reduced the compulsory annuity from 40 per cent to 20 per cent for non-government subscribers.

Mandatory annuity ensures a regular cash flow for members according to their chosen annuity scheme. The frequency could be monthly, quarterly, half-yearly, or annually. Subscribers have the option to select from a variety of annuity options that annuity service providers (ASPs) offer.

Notably, in financial year 2024-25, the most preferred annuity option was ‘Annuity for life with return of purchase (RoP) price on death’. Of the total 53,019 annuities issued during the year, around 48 per cent (24,439) were subscribers for this annuity.

Here are the details of annuities in the sequence of their preference by subscribers in 2024-25: 

1. Annuity for life with RoP price on death - 25,439 annuities issued

2. Annuity payable for life with 100 per cent annuity payable to spouse on death of annuitant with RoP - 4,770 annuities issued

3. Annuity for life - 4,607 annuities issued

4. NPS - Family Income Option - 2,429 annuities issued

5. Annuity payable for life with 100 per cent annuity payable to spouse on death of annuitant - 1,454 annuities issued

To settle all the 53,019 annuities in 2024-25, a total of Rs 4,888 crore was involved. Compared to this, in 2023-24, there were 42,423 annuities issued involving Rs 3,764 crore.

Do note that if the total accumulated pension wealth (APW) is less than Rs 8 lakh, subscribers can withdraw the entire amount on normal exit (exit at superannuation) as per the new rules.

An annuity is a useful option for those who need a regular cash flow after retirement but don’t have a pension option.

Let us see what types of annuities one can avail of under NPS.

Lifetime Annuity Without ROP Price: 

Under this, subscribers get a lifetime annuity which stops when the subscriber dies. Then, the purchase price is returned to the nominee. 

Lifetime Annuity To Spouse Without ROP: 

The annuity is paid to the annuitant for life, and after death, it continues to be paid to the surviving spouse. It stops after the death of the spouse, and no money is returned to the legal heirs. 

Lifetime Annuity With ROP: 

Under this option, a subscriber receives an annuity for life. It stops after the annuitant dies, and 100 per cent of the initial purchase price is returned to the nominee. The policy is then terminated. 

Lifetime Annuity With Spousal Benefit And ROP: 

This option provides annuity for life to the annuitant and after the subscriber’s death to the spouse. After the demise of both the subscriber and spouse, the full initial purchase price is returned to the nominee. 

Lifetime Annuity With Family Benefits And ROP: 

Under this option, the subscriber/annuitant receives the annuity for life. After the demise of the subscriber, it is paid to the spouse and after the death of the spouse, to the mother of the subscriber. After the death of the mother, the father becomes entitled to receive this annuity, and after the father’s death, the principal amount is returned to the subscriber’s legal heirs or nominees.

There are a total of 16 ASPs. HDFC Life Insurance issued the highest annuities (13,061), followed by SBI Life Insurance (10,441), and Axis Max Life Insurance (7,312), during 2024-25.