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Nps amount receivable as pension at the age of 60

P V Deshpande (Professional) (27 Points)

20 March 2017

NPS CRA website provides calculations through following link "https://cra-nsdl.com/CRAOnline/aspQuote.H T M L". If appropriate details are filled, say for example, a person of age 60 years (now) for either Govt or Private sector subscriber with NPS corpus of 10 Lakh Rs, the value of annuity for lift (e.g. from LIC) is shown as 7450 Rs. My question is even if one calculates this payment for next 10 years (upto age of 70), it works out to be only 8.94 lakhs only. In this case, where is the interest component of invested amount so far assuming the subscriber has invested for last 20 years to gather a corpus of 10 Lakhs. Can any one explain how NPS annuity works out during post 60 age given investment growth on y-o-y basis are shown more than 10 - 12%. Regards.

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2 Replies

Dhirajlal Rambhia (SEO Sai Gr. Hosp.) (160484 Points)
Replied 21 March 2017

You invest in NPS to accumulate corpus. You use the corpus (at least 40%) to purchase annuity at the time of retirement. However, these annuity plans are not sold by NPS Trust. The annuity plans are sold insurance companies empanelled with NPS. The annuity rates are not guaranteed. You get the rate prevailing at the time of your annuity purchase.

When you purchase an annuity plan, you enter into a contract with an insurance company. In return for the purchase price, the insurance company makes you periodic payments (monthly, quarterly, semi-annual or annual) for life (or fixed period). The pension that the insurance company pays depends on your age and the type of annuity plan chosen.

Annuity Options available under NPS

Annuity/ pension payable for life at a uniform rate.
Annuity payable for 5, 10, 15 or 20 years certain and thereafter as long as the annuitant is alive. (I do not understand how this works)
Annuity for life with return of purchase price on death of the annuitant.
Annuity payable for life increasing at a simple rate of 3% p.a.
Annuity for life with a provision of 50% of the annuity payable to spouse during his/her lifetime on death of the annuitant.
Annuity for life with a provision of 100% of the annuity payable to spouse during his/her lifetime on death of the annuitant.
Annuity for life with a provision of 100% of the annuity payable to spouse during his/ her life time on death of annuitant. The purchase price will be returned on the death of last survivor.

Option 6 is the default annuity option.

P V Deshpande (Professional) (27 Points)
Replied 22 March 2017

thank you Sir for detailed reply. My query is in fact after the annuity is purchased and the use gets the same and goes on say for 10 years. My investement (principal) does not get recovered through annuity payments. What about the interest component for so many years ?