The National Pension Scheme (NPS) is not just about saving for retirement—it’s also about ensuring steady post-retirement income. That’s where the annuity component of NPS comes into play. After building your pension corpus through regular contributions, a portion of the corpus is mandatorily used to purchase an annuity plan that pays out income for life.
This blog explains what annuity in NPS means, how it works, the types of annuity options available, the current rates, rules, service providers, and how to calculate your expected returns.
What is an Annuity in NPS?
An annuity in NPS is a financial product that provides regular payouts to the subscriber after retirement. As per NPS rules, when you exit the scheme (typically at age 60), at least 40% of your accumulated corpus must be used to purchase an annuity from a registered Annuity Service Provider (ASP).
The annuity ensures a monthly or quarterly income stream, depending on the option selected.
How Annuity Works After NPS Maturity
Here’s what happens at the time of withdrawal:
- You choose how much of the corpus to withdraw (up to 60% tax-free)
- The remaining 40% is used to buy an annuity plan from an ASP
- The ASP pays regular income—monthly, quarterly, half-yearly, or annually
- The payment continues for your lifetime or jointly with a spouse, depending on the chosen option
Common NPS Annuity Options:
- Life annuity (only for the subscriber)
- Life annuity with return of purchase price
- Joint life annuity with spouse
- Joint life with return of purchase price
NPS Annuity Rules & Withdrawal Guidelines
- Minimum 40% annuitization is mandatory at retirement
- If the corpus is less than ₹5 lakh, complete withdrawal is allowed
- For premature exit, 80% must be used to purchase annuity
- The annuity income is taxable as per the individual’s income slab
You must select an Annuity Service Provider at the time of withdrawal. The choice of annuity and provider can significantly impact your post-retirement income.
Types of Annuity Plans in NPS
| Plan Type | Description |
| Life Annuity | Pension till subscriber’s lifetime only |
| Life Annuity with Return of Purchase Price | Pension + refund of initial amount to nominee |
| Joint Life Annuity | Pension continues to spouse after subscriber’s death |
| Joint Life with Return | Pension continues + refund of amount to legal heir |
| Increasing Annuity | Pension increases at a fixed rate every year |
You can compare features and choose based on income needs and family responsibilities.
NPS Annuity Rates in 2025
Annuity rates vary depending on:
- Type of annuity chosen
- Age at annuity purchase
- Annuity service provider (ASP)
Average Rates (as of 2025):
- Basic Life Annuity: 5.8% to 6.5%
- With Return of Purchase Price: 5.3% to 5.8%
- Joint Life Annuity: 5.5% to 6.2%
These rates can fluctuate based on interest rate trends and provider terms.
NPS Annuity Service Providers in India
As of 2025, the following are the registered Annuity Service Providers (ASPs) under NPS:
- LIC (Life Insurance Corporation of India)
- SBI Life Insurance
- ICICI Prudential Life Insurance
- HDFC Life Insurance
- Bajaj Allianz Life Insurance
- Kotak Mahindra Life
- Canara HSBC Life
You can select the ASP at the time of withdrawal based on available annuity options and rates.
How to Use the NPS Annuity Calculator
You can estimate your annuity income using the NPS Annuity Calculator. Most ASPs and the NSDL CRA portal offer this tool.
Steps:
- Visit an ASP or CRA portal
- Enter purchase amount (e.g., ₹10 lakh)
- Select age, annuity type, payout frequency
- View estimated monthly/annual pension amount
This helps you compare different ASPs and plans before finalizing your choice.
Conclusion
Understanding how annuity works in NPS is crucial for retirement planning. The right annuity choice can ensure financial security, predictable income, and peace of mind. Compare options carefully, use calculators, and choose a reputed ASP to maximize your retirement income.
Frequently Asked Questions (FAQs)
What is an annuity in the National Pension Scheme (NPS)?
It is a contract where a portion of your NPS corpus is used to buy a plan that gives regular income post-retirement.
How is annuity calculated in NPS?
Based on the amount invested, your age, annuity type, and rates offered by the selected ASP.
What are the different annuity plans available under NPS?
Life annuity, life with return, joint life, increasing annuity, and more.
Can I choose my NPS annuity provider?
Yes. You can select from a list of authorized ASPs at the time of NPS withdrawal.
What is the minimum annuity purchase requirement in NPS?
At least 40% of the corpus must be used for annuity if retiring after 60; 80% if exiting prematurely.
What are the latest NPS annuity rates in 2025?
They range between 5.3% to 6.5%, depending on plan type and provider.
Is annuity income from NPS taxable?
Yes. It is treated as regular income and taxed as per your income slab.
Can I switch annuity service providers in NPS later?
No. Once purchased, the annuity provider and plan cannot be changed.
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