What is Annuity in NPS?
- Answer Field
-
An annuity in NPS refers to the regular in some offered by NPS at regular intervals. Individuals need to choose one of the five types of annuity in NPS.
BAJAJ BROKING
The National Pension Scheme is one of the popular voluntary retirement schemes. Backed by the government of India, NPS provides a regular retirement income through an annuity in NPS. An annuity is simply a set amount of regular income that the individual receives at a set frequency. NPS is one of the stable retirement income schemes that can help individuals have a financially sound retirement.
The annuity percentage in NPS is fixed at a minimum of 40% of the total corpus. This means that the individuals need to dedicate at least 40% of the NPS amount towards the annuity. They may withdraw the remaining 60% as a lump sum. However, anyone who chooses to exit the scheme prior to retirement needs to dedicate 80% of the NPS corpus towards an annuity.
Some of the striking features of annuity in NPS are:
Guaranteed Flow of Income
Through annuity in NPS, individuals build a guaranteed flow of retirement income. The annuity is received at a fixed interval every month so you can have financially stable years even after retirement.
Flexibility in Annuity
You have the choice to choose from the different types of annuity options. Thus, you get the freedom to plan your retirement in a way that best suits your needs.
Percentage of Annuity in NPS
The annuity percentage in NPS is 40% for retired people. Upon reaching the age of retirement, it is crucial to invest a minimum of 40% of the corpus to receive a regular annuity.
Note: If the NPS balance is below ₹2.5 lakhs, the individual may withdraw the entire amount.
The National Pension Scheme benefits you in multiple ways. The annuity in NPS provides you with the following benefits:
A One Time Task
It is a one-time investment, and you need not keep investing multiple times. Upon retirement, you need to invest a minimum of 40% NPS balance towards annuity and start receiving income for the remaining years
Regular Pension
You can sit and relax while the scheme provides you with a regular pension after retirement. It is paid at a regular interval for a stable retirement income
Fixed Annuity
The annuity payment is fixed and not driven by market conditions. It also does not have any change in the interest rates
No Investment Limit
The annuity percentage in NPS is set at a minimum of 40% of the NPS corpus upon retirement. However, there is no cap on the maximum investment.
There are broadly five different types of annuity schemes in NPS, as explained below:
Life & Last Survivor with 100% Income
In this type of annuity scheme, the annuity is payable to the subscriber. After the death of the subscriber, the spouse receives an annuity, and after the demise of the spouse, the annuity ceases.
Lifetime Income
In this type, the annuity is paid by the subscriber. After the subscriber passes away, the annuity ceases to be paid.
Lifetime Income with Capital Refund
The subscriber receives the annuity. After their death, the nominee receives the principal amount.
Life & Last Survivor with 100% Income with Capital Refund
In this annuity scheme, the subscriber receives the annuity and after their death, the spouse receives the annuity. After the demise of the spouse, the nominee receives the principal amount.
NPS - Family Income
In the Family Income, the subscriber receives the annuity. After the demise of the subscriber, the spouse receives an annuity and after the spouse's death, the family member receives the annuity in the following order:
The dependent mother of the subscriber
The dependent father of the subscriber
The legal heir of the subscriber.
As discussed above, there are five types of annuity in NPS. So, how to choose the right annuity? Here are some of the factors that you must consider:
To choose the right annuity plan, the following factors must be considered:
It is essential to have a plan that provides long-term financial support for a stable retirement
The annuity percentage in NPS can be between 40-100%. So, choose an amount that best suits your income needs
If you have a dependent spouse or family members, you can choose the annuity plan accordingly to ensure a regular income even after you are no longer around. However, in such an annuity type, the income may be comparatively less.
Also, it is essential to keep up with the changing dynamics. It is better to choose a plan that you can also access electronically to avoid visiting physically during your retirement days.
To purchase annuity in NPS, here are the steps you need to follow:
After reaching the age of 60/retirement, you need to exit the national pension scheme
Carefully choose an annuity plan of your preference
If you have NPS balance above ₹2.5 lakhs, you need to invest a minimum of 40% NPS balance in an annuity plan
Exit the NPS to invest the 40% balance in annuity. You may invest any amount between 40-100%.
Annuity in NPS is also subject to certain tax implications. Here are the tax implications that you need to understand:
Section 80CCD(5)
Under Section 80CCD(5) of the Income Tax Act of 1961, the annuity purchase after retirement is exempted from taxation.
Section 80CCD(3)
Under Section 80CCD(3) of the Income Tax Act of 1961, the income from an annuity is taxable as per the tax slab of the individual.
The lump-sum withdrawal from the NPS balance upon retirement is tax-free under Section 10(10D) of the Income Tax Act of 1961.
The minimum annuity percentage in NPS is fixed. Individuals who have a total NPS balance of above ₹2.5 lakhs must invest in an annuity. The individual needs to invest a minimum of 40% NPS balance into annuity plans. However, there is no cap on the maximum investment that you can make. So, one may choose to invest even 100% of the NPS balance towards NPS. In case the balance is below ₹2.5 lakhs, you may withdraw 100% of the balance as a lump sum.
Reading the above sections, you may now have a detailed understanding of the various benefits of annuity in NPS. Not only does it provide a regular income after retirement, but it also offers much-needed peace of mind. Being a one-time investment, you would receive income after the investment is done. Choose an annuity plan that suits your pension requirements!
Do you have a trading account app or demat account app?
You can open an account with Bajaj Broking in minutes.
Download the Bajaj Broking app now from Play Store or App Store.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For All Disclaimers Click Here: https://www.bajajbroking.in/disclaimer
Share this article:
No result found
An annuity in NPS refers to the regular in some offered by NPS at regular intervals. Individuals need to choose one of the five types of annuity in NPS.
Individuals who have an NPS balance of above ₹2.5 lakhs need to invest a minimum of 40% of their NPS balance towards annuity. There is no cap on maximum investment.
Usually, it is not possible to change your annuity provider once it has been chosen after retirement. However, you must check with recent changes to stay updated.
Depending on the type of annuity plan you choose, your spouse or dependents may receive the income. In some types of the annuity plan, the annuity ceases after the death of the subscriber.
Yes. Under Section Section 80CCD(3) of the Income Tax Act of 1961, annuity income is taxable.
The higher interest rate on annuity means a higher pension and vice-versa. So, it is crucial to choose an annuity plan carefully.
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading