Back to Blog
A retirement plan should provide peace of mind in your golden years. Individuals seek to receive a pension after retirement; in this regard, the National Pension System (NPS) is considered one of the best annuity plans in India. Initially introduced for government employees, the NPS was later opened to every Indian citizen. Subscribers can withdraw up to 60% of their retirement corpus, while the remaining 40% must be used to purchase annuities for a regular pension. So, what are the benefits of the best annuity scheme in India? We will explore this in the blog.
NPS – A Brief Introduction
The National Pension System is a voluntary retirement savings plan designed to help individuals financially safeguard their futures. It is a market-linked scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The primary purpose of the NPS is to create a corpus that generates income after retirement. Any Indian citizen aged between 18 and 70 can open an NPS account. Additionally, it offers tax deductions under Sections 80(C) and 80(1B) of the Income Tax Act.
NPS Annuity – Explained
Upon retirement, NPS subscribers can withdraw 60% of the total corpus, while the remaining 40% must be used to purchase an annuity plan from a Registered Annuity Service Provider (ASP), which is empanelled by the PFRDA and deemed reliable for reinvesting your money. An annuity also pays a fixed amount to the subscriber and their spouse upon the subscriber’s death.
Why is NPS the Best Annuity Plan?
The annuity policy of the NPS protects a subscriber’s hard-earned money and provides a steady income during old age. Here are a few key features of the NPS annuity plan:
- Flexibility to choose: The minimum amount to buy annuities is 40% of the retirement corpus; however, NPS subscribers can opt for a higher amount if they prefer a lower lump sum withdrawal and a significantly higher regular pension.
- Withdrawal before the age of 60: Withdrawals can only occur after turning 60 to access 60% of the accumulated corpus. If you wish to exit before 60, only 20% can be withdrawn as a lump sum, while the remaining 80% will be reinvested into an annuity.
- Annuity options: Multiple annuity plans are available in India, including options for lifetime payouts to the subscriber, lifetime payouts with continued income to a spouse after the subscriber’s death, and several customizable variations.
Click here to learn how NPS is an attractive option for retirement planning.
Annuity Policy in NPS – Benefits
- Reinvestment Benefit: A fixed 40% of your retirement corpus is reinvested to provide lifelong annuity payments, potentially increasing in value over time.
- Financial Safety: Annuities ensure a steady income in retirement and protection against financial turmoil.
- No Investment Cap: NPS annuity schemes have no upper investment limit, distinguishing them from other pension tools.
- Partial Withdrawal Option: Subscribers can withdraw up to 25% after three years for specific needs such as marriage, home purchases, or medical expenses.
Final Thoughts
The NPS in India can be regarded as the best annuity plan due to its numerous benefits. Features like the absence of an upper investment cap, flexibility in choosing options, and continued income for a spouse are crucial factors that make the National Pension System a favourable choice for individuals.
