Annuity is the in-built feature of the National Pension System (NPS). Upon superannuation or premature exit from the scheme, the subscriber needs to opt for at least 40 per cent or 80 per cent of the corpus, respectively. It means that on superannuation at 60 years of age, 60 per cent is allowed for lump sum withdrawal, and 40 per cent has to be used for mandatorily buying annuity from an insurance company. In case of premature exit, 20 per cent withdrawal can be availed of as lump sum, and the remaining 80 per cent has to be used for buying annuity.

Note that NPS subscribers have the option to select a suitable annuity plan and annuity service provider (ASP) based on their requirements.

What Is Annuity In NPS?

An annuity is the regular payment to the annuity buyer or annuitant by the insurance company. In the case of NPS, the ASPs transfer annuity to annuitants at their preferred frequency (monthly, quarterly, semi-annually, or annually).

According to Section 20(2) (h) and the Pension Fund Regulatory and Development Authority (PFRDA) (Exits and Withdrawals from National Pension System) Regulations, 2015, subscribers are mandatorily required to purchase an annuity upon superannuation or premature exit from the scheme.

Different Annuity Schemes Under NPS: There are different annuity options in NPS to select from, such as:

• Annuity for life as a consistent rate

• Annuity for life with coverage extended to spouse after the annuitant’s death

• Annuity for life with return of purchase price (RoP) to nominee on death of the annuitant

• Annuity for life with 100 per cent annuity payable to spouse on the annuitant’s death and after the spouse’s death, RoP to the nominee.

• Annuity for a family refers to the payment, first to the annuitant, and after the annuitant’s death, to the spouse. After the demise of the spouse, it is given to the subscriber’s mother. After her demise, to the subscriber’s father, and after the death of the last survivor, to the annuitant’s nominee.

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Can You Change The ASP After Purchasing The Annuity Plan?

According to Protean, a central recordkeeping agency (CRA) for NPS, a subscriber starts getting the pension under NPS after the ASP verifies the subscriber’s documents and exit request received through the CRA, and then issues an annuity policy.

ASPs usually offer a free-look period within which that annuity plan can be cancelled. However, if an ASP has not offered the free-look cancellation period under the policy, then cancelling it and reinvesting through another ASP would not be possible.

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When Can You Change The Annuity Plan Or The ASP?

According to PFRDA’s recent circular dated October 24, 2024, the surrender or cancellation by the ASP is permitted only during the free-look period.

It states, “In line with the intent of the Act and Regulations and to ensure that NPS subscribers who purchase annuity after exit continue to receive annuity benefits as per the terms of the annuity contract, it has been decided that henceforth no surrender/cancellation of the annuity shall be entertained or permitted by the ASP, save and except during the free-look period to provide for cancellation of annuity at the option of the annuitant and issuance of another annuity to him/her with the same ASP or with another ASP, as per his/her choice.”

If an annuitant wants to cancel the annuity and purchase one from another ASP, the cancellation proceeds will be transferred to the Trustee Bank, and the CRA will be informed to issue a new policy, according to the circular.

Cancelling the annuity and opting for a new ASP will consume unnecessary time and effort. So, a subscriber should be careful while selecting an annuity plan and a service provider and also read the annuity contract carefully to check the free-look period in case there arises a need to change the plan or service provider.