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The National Pension Scheme (NPS) is a government-backed pension plan available for public, private, and unorganized employees. It is a voluntary plan that matures at the age of 60. At maturity, you can withdraw 60% of the scheme’s value in a lump sum and cater to your immediate financial needs. However, the remaining 40% has to be used to purchase an annuity plan. If you are using or wish to use NPS for your retirement financial security, there are some things you must know about NPS annuity plans.
What is Annuity in NPS?
As stated above, 40% of your scheme’s value must be used to buy an annuity policy at maturity. An annuity is a legal agreement between you and your service provider. As per the contract, you pay an upfront amount to purchase the plan, and receive a regular income for the rest of your life or the chosen term.
How to Choose the Best Annuity Service Provider in NPS?
In order to ensure that you get the best annuity policy for your hard-earned savings, there are many Annuity Service Providers (ASPs) in India that you can choose from.
Each ASP can offer unique features. They also add returns to your fund’s value that are given to you along with your regular pay-outs at the chosen intervals. You can select the best annuity plan for NPS out of the available options per your preference and needs.
What is the Current Annuity Rate in NPS?
The annuity rate in NPS can differ for each annuity service provider. It also varies as per the type of plan and the value of the annuity. However, you can visit the official government’s NPS website to find out the latest interest rates at the time of purchase.
What Types of Annuity Plans are Available under NPS?
The precise annuity features can be different for each annuity service provider for NPS. However, you can pick from one of the following plans:
- Annuity for life for the subscriber: This type of annuity plan offers a regular income to the NPS subscriber for life. Post-death of the annuitant/subscriber, the plan terminates automatically.
- Annuity with life for the subscriber with the return of purchase price: This type of plan offers a regular income to the NPS subscriber for life. Post the demise of the annuitant/ NPS subscriber, the nominee or legal heir of the annuitant can claim the entire amount used for purchasing the annuity plan.
- Annuity with life for the subscriber with the return of purchase price on the diagnosis of a critical illness: This type of annuity policy offers a regular income to the NPS subscriber for life. Additionally, the annuitant can claim the entire annuity amount to cover the medical expenses of a critical illness. However, if the annuitant is not diagnosed with a critical illness during the policy term and passes away, the nominee or legal heir can claim the entire amount used for purchasing the annuity plan.
- Joint-life annuity for subscriber and secondary annuitant with return of purchase price: This type of plan offers a regular income to the NPS subscriber for life. NPS annuity after the death of the primary annuitant/ NPS subscriber is given to the secondary annuitant of the policy. After the death of the secondary annuitant, the nominee or legal heir can claim the entire amount used for purchasing the annuity plan.
Benefits of NPS Annuity Plans
Here are some benefits of NPS annuity plans:
- An annuity policy can offer regular income post-retirement.
- An annuity plan helps to secure the spouse and legal heirs of the NPS subscriber.
- Annuity plans are low-risk, so there is no fear of losing money.
- Each annuity service provider for NPS offers add-ons and benefits that can help to increase the fund’s value over time.
Conclusion
When it comes to choosing an annuity plan with NPS, make sure to compare your options and pick the best annuity service provider. This is an excellent way to secure your retirement as well as offer your spouse and dependents adequate funds in your absence.
