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Annuity options in India explained — life, joint life, return of purchase price and how to compare quotes
How annuities work for NPS exits and pension plans: the main options, why rates differ, worked pension comparisons, payout frequency and mistakes to avoid when buying.
An annuity turns a lump sum into a guaranteed income for life, paid by a life insurer. You pay a purchase price once, and the insurer pays you a fixed amount every month, quarter or year according to the option you choose. The higher the protection for your family, the lower the rate: a single-life annuity pays the most, a joint-life annuity that continues to your spouse pays less, and an option that returns the purchase price to your nominee pays less again. NPS subscribers must buy an annuity from a PFRDA-empanelled annuity service provider at exit (at least 20% of the corpus for most non-government subscribers, 40% for government subscribers). Annuities are regulated by IRDAI, and rates change with interest rates, so all rates below are illustrative, not quotes.
The main options
| Option | What you get | What your family gets | Relative rate |
|---|---|---|---|
| Life annuity | Fixed pension for your lifetime | Nothing after your death | Highest |
| Life annuity with return of purchase price (ROP) | Fixed pension for life | Purchase price paid to nominee on death | Lower |
| Joint life, 100% to survivor | Pension for your life | Spouse receives the same pension for life | Lower than life annuity |
| Joint life with ROP | Pension for both lives | Purchase price to nominee after the second death | Lowest of these |
| Increasing annuity | Pension that rises by a fixed percentage each year | Depends on version | Starts lower |
| Annuity certain for N years, then life | Pension guaranteed for N years even if you die | Remaining guaranteed years | Slightly lower than life annuity |
| Deferred annuity | Pension starts after a deferment period | Depends on version | Higher rate when payments start |
Insurers can label these options differently, but the trade-offs are the same.
Why rates differ
- Age: older buyers get higher rates because payments are expected for fewer years.
- Option: every extra guarantee (spouse, return of price, guaranteed period) costs some of the rate.
- Interest rates: insurers back annuities with long-term bonds. When bond yields fall, new annuity rates fall too; your rate is locked when you buy.
- Payout frequency: monthly payments usually carry a slightly lower annual rate than yearly payments.
- Insurer pricing: rates for the same option can differ noticeably between insurers on the same day.
Worked comparison (illustrative rates)
A 60-year-old with ₹20 lakh to annuitise, using assumed rates to show the trade-off:
| Option | Assumed rate | Yearly pension | Monthly |
|---|---|---|---|
| Life annuity | 7.0% | ₹1,40,000 | ₹11,667 |
| Joint life, 100% to spouse | 6.6% | ₹1,32,000 | ₹11,000 |
| Life with ROP | 6.2% | ₹1,24,000 | ₹10,333 |
| Joint life with ROP | 6.0% | ₹1,20,000 | ₹10,000 |
The life annuity pays ₹1,667 a month more than joint life with ROP, but if the buyer dies after a few years, the spouse gets nothing and the ₹20 lakh is not returned. With ROP, the nominee gets ₹20 lakh back, which in effect means you have given up part of the income to leave a fixed sum. Whether that is worth it depends on your spouse's other income and whether you want to leave money behind. Rerun with real quotes in the annuity pension calculator.
Inflation and annuities
A fixed ₹11,667 a month loses about half its purchasing power in 12 years at 6% inflation. Ways to deal with this:
- annuitise only what you need for a basic floor and keep the rest invested;
- buy annuities in stages (some at 60, more at 65 or 70, when rates for your age are higher);
- consider an increasing annuity if offered, accepting a lower start.
The NPS rules let you defer the annuity purchase up to 85, which makes staged purchases possible; see NPS exit rules.
How to buy an annuity at NPS exit
- When you submit the exit request, you choose an annuity service provider and an option. The list of empanelled providers is on the PFRDA and NPS Trust websites.
- Get quotes from at least two or three providers for the same option, frequency and age.
- Check the nominee and the spouse's details carefully; joint-life options require the spouse's age and KYC.
- Keep the policy document and check the first payment against the quote.
Mistakes to avoid
- Buying the first option shown without comparing. A difference of 0.3 percentage points on ₹30 lakh is ₹9,000 a year for life.
- Choosing ROP by default when the main goal is income for a surviving spouse; joint life may suit better.
- Ignoring tax. Annuity income is taxable as income in the year received.
- Annuitising everything, leaving no emergency money; annuities usually cannot be surrendered for cash.
- Confusing an annuity with a "pension plan" sold years before retirement, which may be an insurance-cum-investment product with higher charges.
Related: NPS pension estimate, retirement income plan example and the retirement corpus guide.
Frequently asked questions
Can I cancel an annuity after buying it?
Life insurance policies, including annuities, have a free-look period after you receive the policy document, during which you can return it with some deductions. After that, most annuities cannot be surrendered, except some ROP options in limited cases.
Is annuity income guaranteed?
Yes, the insurer is contractually bound to pay. Insurers are regulated and supervised by IRDAI.
What is a good annuity rate?
There is no fixed benchmark. Compare quotes for your age and option on the same day; compare them also with SCSS for the first five years.
Where do I complain about an annuity insurer?
First to the insurer's grievance officer, then IRDAI's Bima Bharosa system, and then the Insurance Ombudsman.
Official sources
- IRDAI — regulation of annuity products and Bima Bharosa grievance system
- PFRDA — empanelled annuity service providers for NPS
- Council for Insurance Ombudsmen — Insurance Ombudsman complaints
- NPS Trust — annuity service provider information
