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The National Pension System (NPS) is a smart way to prepare for your retirement years. Your can make regular contributions that can help create a substantial retirement corpus over time. After you retire, you can withdraw a part of the money as a lump sum and use the remaining amount to buy an annuity in NPS. NPS annuities provide montly payouts similar to pension after retirement. ...Read More
Trust of 20+ Years in Industry
Written bySumit Narula
Investment Writer
Published 18th February 2026
Reviewed byPrateek Pandey
Last Modified 18th February 2026
Investment Expert
What is an Annuity in NPS?
Annuity in NPS is defined as the monthly payout your NPS plan offers after retirement. calculated from a portion of your NPS savings. You need to use at least 40% of the total corpus to buy an annuity plan at the time of exiting NPS.
This annuity gives you a regular income for life and helps you stay financially secure after retirement.
Understanding the Concept of Annuity
An annuity is a plan you buy from an insurance company to get a steady income after retirement. You can purchase an annuity through a one-time purchase or make relatively small payments. In return for purchasing an annuity plan, the annuity provider gives you regular payouts depending on the annuity variant chosen.
These payments can start right away in the case of an immediate annuity plan.Alternatively, the payouts can start after a pre-determined time period in the case of a deferred annuity plan. Many individuals in India use annuity plans to ensure they have a reliable income in their retirement years after regular imcome has stopped.
These payments can start right away in the case of an immediate annuity plan.Alternatively, the payouts can start after a pre-determined time period in the case of a deferred annuity plan. Many individuals in India use annuity plans to ensure they have a reliable income in their retirement years after regular imcome has stopped.
Role of Annuity in National Pension System (NPS)
In NPS, you make contributions over time and create a corpus of funds. After your reach the age of 60 years or before the age of 75 years, the NPS corpus undergoes superannuation. At superannuation, you can purchase an annuity plan.
As per current National Pension System (NPS) rules, annuity purchase needs to meet the following criteria:
- At least 40% of your NPS corpus must be used to buy an annuity after superannuation.
- If you exit NPS before age 60, you can withdraw only 20% of your corpus. The remaining 80% of the amount must be used to buy an annuity plan.
The purpose of annuity in NPS is to ensure every subscriber has access to a reliable income source in their old age. Annuity plans feature an interest rate that is fixed at inception and does not change during the lifetime of the annuitant.
The regular predictable income of an annuity plan stops after the death of all annuitants. Then depending on the plan chosen, the purchase price of the annuuity may be returned to the nominee/legal heir of the annuitant.
How Does Annuity Work in NPS?
To receive a pension from NPS, you must purchase an annuity from an NPS Annuity Service Provider (ASP). Once you have purchased a NPS annuity, the ASP starts making regular payouts based on the plan you choose.
Currently annuity payouts of NPS can be monthly, quarterly, half-yearly, or annual. These regular payout from annuities are designed to serve as replacement of income from salary or business that stop after your retire. This regular and predictable payout can help you manage your expenses so that you can be financially secure after retirement.
Process of Purchasing an Annuity
- Exit your NPS account after retirement. You will have the right to purchase an annuity.
- Based on your exit type, use at least 40% of your savings for buying an annuity.
- Select an authorised service provider
- Choose a suitable annuity option, such as immediate, deferred, fixed, or variable.
- Complete the application and secure the necessary funding, depending on the plan you choose.
- Complete KYC and documentation with the insurer.
- Review the contract carefully within the free-look period.
- Once you reach your selected start date, the insurance company will begin sending you regular income payments as per the chosen frequency (monthly, quarterly, semi-annually, or annually).
Pension Fund Manager & Annuity Service Provider
Pension Fund Managers (PFMs) and Annuity Service Providers (ASPs) are key parts of the Nation Pension System ecosystem. Below are key details of how each of these entities fit into the NPS framework:
- Pension Fund Managers (PFMs): They invest and manage the funds received from NPS subscibers. The NPS contributions are distributed across various asset classes such as stocks, corporate bonds, government securities and alternative investment funds.
- Annuity Service Providers (ASPs): ASPs are entrusted with providing NPS annuity plans to subscribers at the time of exit from NPS. Once you have purchased an annuity plan, the ASP then managed the annuity plan for you. This provides regular and guaranteed income over the lifetime of the annuitants.
Types of Annuity Options in NPS
Currently multiple types of NPS annuity plans are offered. Each of these has its unique features. Read on to learn about the different types of annuity plans offered under NPS and their key features.
Annuity for Life with Return of Purchase Price
Annuity for life with return of purchase price provides financial security to the annuitant during their lifetime. Additionally, it also ensures a legacy for dependents after the demise of the annuitant. Key features of this type of annuity plan of NPS are:
- You receive a guaranteed income for your entire life.
- Payments stop when the subscriber passes away
- The purchase price is returned to the nominee/legal heir after the demise
Joint Life Annuity with Return on Purchase Price
In this case, the primary annuitant and spouse are annuitants of the plan. The purchase price of the plan is returned only after both annuitants are no more.
- Pension can be availed over the annuitant’s entire lifetime
- Pension continues for your spouse after your demise.
- After the demise of both annuitants, the nominee/legal heir receive the purchase price
Annuity without Return of Purchase Price
In this case, the lifetime pension is available to the annuitants. However, pension payout ceases after annuitants die and the purchase price is not returned. So, annuity payout is maximised during the annuitant’s lifetime.
- The annuitants receive income for their entire lifetime.
- After death, the purchase price is not returned to your nominee.
- Good option for individuals seeking to maximise their annuity payouts during their lifetime
Benefits of an Annuity in NPS
NPS Annuity plans offer several benefits that make it an ideal solution for receiving predictable regular income after retirement. Below mentioned are some of the key benefits that you can receive from a NPS annuity plan:
Locked-in Annuity Rates
Annuity rates of NPS are locked-in at the time of purchasing the annuity plan. So, changing market conditions do not have any impact on the payout that you receive. So, your annuity payout after retirement does not change and remain predictable no matter what occurs.
Guaranteed Lifetime Income
An annuity provides a stable monthly income for life, helping you manage expenses with confidence even after retirement. The payout occurs at predictable interval and the amount does not vary based on market conditions. So, annuities can act as replacement of regular income from salary or business that stops after your retirement.
Flexibility in Annuity Purchase Amount
As per current NPS withdrawal rules, at superannuation the minimum annuity purchase is fixed at 40% of NPS Tier I account corpus, provided the corpus size exceeds ₹5 lakh. However, one can choose to opt for a higher purchase up to 100% of the tier 1 corpus.
The size of corpus used for annuity purchase has direct impact on the annuity payout. So, the flexibility of allocating a larger corpus towards annuity purchase means you will receive a higher payout after retirement.
The size of corpus used for annuity purchase has direct impact on the annuity payout. So, the flexibility of allocating a larger corpus towards annuity purchase means you will receive a higher payout after retirement.
Flexibility to Choose Payout Option
You can select how often you want to receive payments. Current NPS annuity options available to you include:
This flexibility allows you choose a payout interval based on your financial needs after your regular income has ceased.
- Monthly
- Quarterly
- Half-yearly
- Once a year
This flexibility allows you choose a payout interval based on your financial needs after your regular income has ceased.
Various Annuity Providers
At present, NPS annuity plans are offered by 14 leading life insurance companies in India. This provides you a significant flexibility when choosing an annuity service provider that suits your post-retirement financial needs.
Annuity Rates in NPS
Annuity rates in NPS vary based on multiple factors and are subject to periodic change. However, once you purchase a NPS Annuity Plan, the interest rate offered at inception gets locked-in over the entire payout period.
Key factors that impact annuity rates in NPS include:
- Type of annuity plan: NPS annuity plans can be one of 4 types. The annuity rate is typically highest in the case of annuity for life without return of premium variant. Similarly, the lowest NPS annuity rate is usually applicable to annuity for life with return of premium benefit.
- Market Conditions: NPS annuity plan returns tend to change periodically. This change in the rate of returns is typically based on the prevailing market rates. So, if broader market rates are high, NPS annuity plan rates will also move upwards in response. Similarly, if broader market rates show a declining trend, NPS annuity rates will also move downwards in response.
- Annuity Provider: Currently there are 14 annuity service providers under NPS. Each annuity provider offers a different annuity rate as per their criteria. So, NPS annuity rates can differ significantly based on the annuity provider chosen at the time of purchase.
1. Alignment With Financial Goals
Comparing interest rates offered by time and demand deposits helps you analyse their alignment with your financial goals. The potentially higher interest rate offered by term deposits compared to demand deposits makes the former ideal to achieve long-term goals. Demand deposits, on the other hand, may be ideal for creating an emergency corpus due to their higher liquidity.
2. Liquidity Analysis
A demand deposit will be useful in achieving your financial aspirations in case you are seeking to find very liquid assets to support your daily spending needs. Meanwhile, when you need to plan long-term investments like your daughter’s marriage, then you need to take a time deposit, as it gives better returns.
3. Risk Assessment
The Deposit Insurance and Credit Guarantee Corporation (DICGC) provides coverage for time and demand deposits up to ₹5 lakh per depositor per bank, thereby safeguarding people. However, consider risk factors such as inflation risk, where fixed deposits might not beat inflation, and liquidity risk, in which fixed deposits limit access to funds. Carefully analyse the risk factors involved with both types of deposits and choose the one that aligns with your financial goals.
4. Balanced Approach to Manage Funds
The best strategy to manage funds in different deposits is a balanced approach to select both time deposits and demand deposits in the following ways:
- Emergency Fund Strategy: You can choose a demand deposit to maintain 6-12 months of expenses for better liquidity and invest the surplus funds in fixed deposits for long-term investment and better returns.
- Goal-Based Approach: Select demand deposits when you have a short-term objective (1 year or less) and time deposits when you have a medium-term objective (1-5 years) to achieve your financial goals.
- Laddering Method: Invest in multiple time deposits to balance returns and maintain liquidity across deposits. This will ensure that you have cash readily available when needed without having the make premature withdrawals from existing term deposits.
Ideally, it is suggested that one diversify holding across multiple types of deposits and investment options, instead of relying on any specific financial instrument. This can help provide a balance between liquidity, returns and other factors that you need to consider in order to reach your financial goals.
Current NPS Annuity Rates (2026)
As discussed earlier, annuity rate vary based on the current market conditions, the annuity provider and the type of annuity chosen. Currently Axis Max Life Insurance is one of annuity service providers empanelled under NPS.
Below are the current NPS annuity rates offered by Axis Max Life Insurance as of February 2026:
| Type of NPS Annuity Plan | Current NPS Annuity Rates |
|---|---|
| Annuity for Life with Return of Purchase Price | 5.82% |
| Joint Life Annuity with Return of Purchase Price | 6.04% |
| NPS Family Income with Return of Purchase Price | 6.04% |
| Annuity for Life without Return of Purchase Price | 6.51% |
| Joint Life Annuity without Return of Purchase Price | 6.04% |
Note: The above NPS annuity rates offered by Axis Max Life Insurance are as of 13 February, 2026 and subject to periodic change. Please check the official NPS Trust website for updated rates.
How to Select the Right Annuity Option
NPS rates differ based on multiple factors and once selected the rates get locked-in for the entire duration of the annuity payout. Below are some key factors to consider when selecting the right annuity option for you:
Compare Providers and Rates
Annuity rates vary from one annuity provider to another, so check the latest NPS annuity rates that are applicable before making your decision. While it might simple to make your choice based on only the annuity rate, do consider the financial condition of the annuity provider too.
So, while opting for a high NPS annuity rate also seek out a life insurance company with a high solvency ratio. A higher solvency ratio shows that the life insurance company providing the annuity plan is financially secure, so your regular annuity payouts are less likely to be hampered.
So, while opting for a high NPS annuity rate also seek out a life insurance company with a high solvency ratio. A higher solvency ratio shows that the life insurance company providing the annuity plan is financially secure, so your regular annuity payouts are less likely to be hampered.
Evaluate Financial Goals and Family Needs
Before you choose a suitable annuity plan, you need to consider key factors such as your future income needs and the financial needs of your family. This can impact your choice of which type of NPS annuity plan you need to choose.
For instance, if you need to ensure financial security of your spouse or other dependents after your death, you should consider opting for a joint life annuity plan or a family income plan. Similarly, if you want to leave a legacy for your family, you should consider opting for a plan that offers the option of return of purchase price.
For instance, if you need to ensure financial security of your spouse or other dependents after your death, you should consider opting for a joint life annuity plan or a family income plan. Similarly, if you want to leave a legacy for your family, you should consider opting for a plan that offers the option of return of purchase price.
Axis Max Life Annuity Options for NPS Subscribers
Axis Max Life Insurance is one of annuity service providers currently empanelled with the National Pension System, so you can opt for a Axis Max Life annuity plan.
Additionally, you can augment your post retirement financial security by investing in other Axis Max Life pension plans such as:
- Axis Max Life Guaranteed Lifetime Income Plan
- Axis Max Life Smart Wealth Annuity Guaranteed Pension Plan (Swag Pension Plan)
- Axis Max Life Forever Young Pension Plan
- Axis Max Life Smart Guaranteed Pension Plan
These plans offer long term wealth creation to secure your retirement, while offering the benefit of in-built life cover.
Conclusion: Build a Secure Retirement Income Stream
will receive each month after retirement. A wrong choice can mean a lower income for life. So, never rush. Study your options, compare features, and look closely at the payout details. Apart from NPS annuity you can also choose other annuity plans such as the Axis Max Life Smart Wealth Annuity Guaranteed Pension Plan.
Your pension amount depends on what you invest, the annuity rate, and the plan you choose. Make this decision carefully, because once your have made your choice, it cannot be changed. Pick a suitable annuity that meets your retirement needs and secures your future income. So, consider incorporating NPS as part of your retirement planning today
FAQs on Annuity in NPS
Can I nominate someone for my NPS annuity?
Yes NPS annuity allow nomination facility. On death of the primary annuitant, the nominee will receive the benefits of your pension wealth.
How much of the NPS corpus is used to buy annuity?
If you are exiting from NPS at superannuation, least 40% of the accumulated NPS corpus needs to be used for the purchase of annuities. In case of premature exit before superannuation, minimum 80% of accumulated corpus must be used for purchase of annuities. No annuity purchase is required if accumulated NPS corpus is ₹5 lakh or lower at the time of superannuation or up to ₹2.5 lakh in the case of premature exit.
When will I start receiving my annuity under NPS?
Annuity payouts typically start after 30 days once you have made your selection of annuity provider, type of NPS annuity and submitted all necessary documents.
What happens if I exit NPS before age 60?
On case of premature exit from NPS before the age of 60 years, you can withdraw a 20% of the NPS corpus as lump sum and the remaining 80% must be used to buy an annuity plan. However, the entire amount can be withdrawn as a lumpsum, if the total NPS corpus is ₹2.5 lakh or less.
What are the current annuity rates in NPS?
NPS annuity rates currently range from around 5.5% to 7.5% p.a. NPS annuity rates vary depending on the annuity plan provider and the annuity type chosen. The NPS annuity rate is subject to periodic change, but once the annuity is purchased, the rate remains same over the annuity payout term.
How is annuity income taxed?
Annuity payouts are considered as “Income from Other Sources” for taxation purposes. So, this pension income is taxed as per the income tax slab rate under the applicable tax regime.
Can I change my annuity provider after retirement?
Once you have picked your annuity provider, you may receive a freelook period during which you can cancel your annuity and choose a different provider. But after completion of the freelook period, the annuity provider cannot be changed.
Which company offers the best annuity plan in NPS?
Annuity plans offered by different annuity service providers have similar features, but may vary on the basis of returns provided. The NPS annuity rate is subject to change and the number of annuity providers is also subject to change. So do consider all available options before choose a NPS annuity provider that is ideally suited to your needs.
Can I change my annuity service provider later?
You may receive a freelook period after initially purchasing an annuity plan under NPS. You can change your annuity provider during this freelook period. However, once the freelook period ends, you cannot change your NPS annuity provider.
Does NPS guarantee high pension returns?
The National Pension Scheme invests in market-linked instruments, so, returns from this pension plan are not guranteed. However, NPS annuity rates are fixed at inception and annuity payouts are assured.
ARN: Feb26/Bg/14L
Sources:
https://www.icici.bank.in/blogs/nps/annuity-in-nps
https://nps.kfintech.in/annuity/annuityquotes/#divGrid/
https://www.axisbank.com/docs/default-source/life-insurance/max-life-insurance-glip.pdf/
https://www.icici.bank.in/blogs/nps/annuity-in-nps
https://nps.kfintech.in/annuity/annuityquotes/#divGrid/
https://www.axisbank.com/docs/default-source/life-insurance/max-life-insurance-glip.pdf/
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