Paychecks will do their bit to support you till you retire. But what will happen thereafter? Well, basic finances are not something you want to worry about after you’ve hung up your boots. A regular post-retirement income can help you keep up your lifestyle and meet your sundry expenses. And that’s where annuities come in.

 

What is NPS Annuity?

An annuity is a financial product that pays out a fixed stream of payments to an individual and is primarily used as an income stream for retirees.

Once you exit from NPS, you need to invest in an annuity plan to start receiving pension. The annuity then guarantees you a regular income for a stipulated duration based on the plan selection.

You can select any of the Annuity Service Providers (ASPs)  empanelled with PFRDA at the time of your exit from NPS. HDFC Life is one of the registered ASPs for annuity issuance and further servicing.

 

Why do you need to invest in Annuity?

 

Tier I NPS Account

Financial safety-blanket

Annuities protect you against the risk that you may not be able to sustain yourself financially for too long in old age. The Annuity Service Provider (ASP) bears that risk for you with regular payouts for your living expenses.

Flexible to Your Needs

An annuity plan lets you choose between monthly, quarterly, half-yearly or annual payouts. Furthermore, some plans let you meet major expenses with a lump sum too.

NPS Registration
Defer your Withdrawals

Removes Reinvestment Risk

Since India is moving towards lower interest rates, if you’re reinvesting your principal amount, you won’t gain much. Short-term instruments like Post Office Monthly Income Scheme (POMIS) carry this risk. But an annuity guarantees you the same rate of payout for life. For senior citizens looking for a steady stream of income,annuities trump bonds and equities.

No Investment Cap

Other schemes put a stop to how much you can save, such as SCSS (Rs. 15 lakhs combined in multiple accounts) and POMIS (4.5 lakhs in a single account). However, annuities have no such caps. So, if you have accumulated a large corpus and are less inclined to face a deficit, an annuity is a good idea.

NPS Registration

Financial safety-blanket

Annuities protect you against the risk that you may not be able to sustain yourself financially for too long in old age. The Annuity Service Provider (ASP) bears that risk for you with regular payouts for your living expenses.

 

Flexible to Your Needs

An annuity plan lets you choose between monthly, quarterly, half-yearly or annual payouts. Furthermore, some plans let you meet major expenses with a lump sum too.

 

Removes Reinvestment Risk

Since India is moving towards lower interest rates, if you’re reinvesting your principal amount, you won’t gain much. Short-term instruments like Post Office Monthly Income Scheme (POMIS) carry this risk. But an annuity guarantees you the same rate of payout for life. For senior citizens looking for a steady stream of income,annuities trump bonds and equities.

 

No Investment Cap

Other schemes put a stop to how much you can save, such as SCSS (Rs. 15 lakhs combined in multiple accounts) and POMIS (4.5 lakhs in a single account). However, annuities have no such caps. So, if you have accumulated a large corpus and are less inclined to face a deficit, an annuity is a good idea.

 

Types of Annuity Schemes

  1. Annuity for life at a uniform rate to the Subscriber only:  In this plan, the NPS subscriber continues to receive pension till the time any unfortunate event, such as death occurs. Post death of the annuitant, the plan terminates.
  2. Annuity with Life with Return of Purchase Price: In this plan, the NPS subscriber continues to receive pension till the time any unfortunate event, such as death occurs. Upon death of the annuitant, the nominee or legal heir claims the entire amount used for purchase of annuity.
  3. Annuity with Life with Return of Purchase Price on diagnosis of Critical Illness: In this plan, the NPS subscriber can claim the entire amount for annuity purchase for medical treatment if diagnosed with a Critical Illness. If no illness is diagnosed, upon death of the annuitant, the nominee or legal heir claims the entire amount used for purchase of annuity.
  4. Joint-Life Annuity to secondary annuitant with Return of Purchase Price: In this plan, the NPS subscriber continues to receive pension till the time any unfortunate event, such as death occurs. Upon death of the annuitant, annuitant’s spouse starts to receive pension. Post his/her death, nominee or legal heir claims the entire amount used for purchase of annuity.

Types of Annuity Schemes keep on evolving with time. Click here and register yourself to know more about Annuity products. You can also write to us at [email protected].

Share This