EXIT FROM NPS

This query is : Resolved

Ashish Marwah (Querist)
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11 February 2025 Dear Sir

I am 51 single, divorced and have one little sister who is 32. Recently I lost my job, and I am not in the mood to search for a new one. I am in the process of making arrangement to fulfil my monthly needs. I am holding the NPS which has a small corpus of 5 lacs in tier 1 and 45k in tier 2. Now I want to completely exit from the NPS. Now I must compulsorily accept the 20% withdrawal and 80% annuity. I have a few queries below.
1. Should I consider buying 100% annuity. 20% withdrawal does not make sense
2. Should I consider putting 1.5 lacs more to enhance the annuity (The corpus will become 7 lacs approx.).
3. Should I consider taking out the annuity on a yearly basis (Please explain Its pros and cons), since it offers more benefit.
4. Should I consider the Shriram life insurance.
5. Will it be safe to consider Shriram life insurance for life long future annuity. It offers the highest annuity.
6. Should I consider Annuity for Life with ROP - Subscriber will get annuity for lifetime and on death of the Subscriber, payment of annuity ceases & 100% of the purchase price will be returned to the nominee(s). The annual offer is 49,063.00 (7.01%)
7. Should I consider Annuity for Life without ROP - Subscriber will get annuity for lifetime and on death of the Subscriber, payment of annuity ceases, and no further amount will be payable. The annual offer is 58,112.00 (8.30%)

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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12 August 2025 1. Should you consider buying 100% annuity or take 20% lump sum withdrawal?
Mandatory rule: At exit (before 60 years), you must withdraw 20% lump sum (tax-free) and invest 80% in an annuity plan.

You cannot withdraw 100% lump sum unless your corpus is less than ₹2 lakh.

So, if you want to get a lump sum now, it will only be 20%, rest has to be converted into annuity (guaranteeing you a monthly/annual pension for life).

2. Should you put ₹1.5 lakh more to enhance annuity?
More corpus = higher annuity payouts.

If you have the capacity to add ₹1.5 lakh now and you are certain about relying on annuity income long term, this will increase your pension.

But consider your current cash flow needs and emergency fund before locking more money.

3. Taking annuity on a yearly basis — pros and cons?
Annuity payouts can be monthly, quarterly, half-yearly, or yearly.

Yearly payout means: You get one lump sum payment every year.

Pros:

You get a bigger amount once a year to manage bigger expenses.

You can invest the amount yourself during the year for additional returns.

Cons:

You need good financial discipline to manage money over the year.

Risk of mismanagement or spending too fast.

No monthly cash flow, so you must plan monthly expenses from that lump sum.

Monthly payouts are safer if you want steady income flow.

4 & 5. Shriram Life Insurance as an annuity provider — is it safe?
Shriram Life Insurance is a registered and regulated insurer.

Like other insurers, it offers annuities backed by the company’s investments.

However, all insurance companies carry some risk of credit/default (though minimal for established insurers).

Government-run annuity schemes are safer but may offer lower rates.

Shriram often offers higher rates but consider the company’s financial health before deciding.

6 & 7. Annuity for Life with ROP (Return of Purchase Price) vs. without ROP
With ROP:

You get annuity payments for life.

On your death, the purchase price (corpus) is returned to your nominee(s).

Lower annuity rate (7.01%) because of the added security.

Good if you want to protect your corpus for heirs.

Without ROP:

Annuity payments cease on your death.

No return of corpus.

Higher annuity rate (8.30%) because insurer takes on more risk.

Good if you want higher income during your lifetime and don’t care about leaving corpus.

Summary suggestions for you:
You must take 20% lump sum and 80% annuity (no option to take 100% lump sum).

Consider adding corpus only if you are comfortable locking more money.

If you want steady income with less hassle, choose monthly annuity payouts.

Shriram Life is an option but review company credit ratings and consider a reputed insurer if you prefer.

Choose annuity with ROP if you want to secure corpus for your sister or heirs.

Choose without ROP if you want maximum income during your life.

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