An annuity in NPS is a guaranteed pension that you buy at exit from a PFRDA-approved insurance company using part of your accumulated retirement corpus, and it typically pays you a fixed amount for life. How much of your corpus you must put toward it, what the pension looks like, and how it reaches your bank account depend on whether you are a government or non-government subscriber and on the size of your savings when you exit.
How Much of Your Corpus Must Buy the Annuity
PFRDA rewrote its exit regulations in late 2025, and the mandatory annuity share now depends on your subscriber category and your corpus size at exit.
Government Subscribers
If you are a government employee exiting at retirement or superannuation, at least 40% of your accumulated pension wealth must go toward buying an annuity, and the remaining 60% can be withdrawn as a lump sum.1NPS Trust. FAQs for Exit from National Pension System You can voluntarily allocate more than 40% if you want a larger pension, but you cannot go below that floor.
Government employees who exit prematurely because of resignation, removal, or dismissal face a much steeper requirement: 80% of the corpus must buy an annuity, leaving only 20% as a lump sum.1NPS Trust. FAQs for Exit from National Pension System
Non-Government Subscribers
For subscribers in the All Citizen Model and Corporate Sector, the mandatory annuity share now moves with your corpus size:2PFRDA. Press Release – Key Changes – Exit Regulations
- Corpus up to ₹8 lakh: the entire amount can be withdrawn as a lump sum. No annuity is required.
- Corpus above ₹8 lakh and up to ₹12 lakh: up to ₹6 lakh can come out as a lump sum. The rest must buy an annuity with a minimum tenure of six years.
- Corpus above ₹12 lakh: at least 20% of the corpus must buy an annuity, and up to 80% can be withdrawn as a lump sum.
Non-government subscribers exiting prematurely with a corpus of ₹5 lakh or less can withdraw the entire amount without buying any annuity. Above that threshold, the tiered rules apply with higher mandatory annuity percentages.
Types of Annuity Plans You Can Choose
PFRDA-empanelled insurers offer several annuity structures, each trading monthly pension against protection for your family. The choice is essentially permanent once the policy is issued, so it deserves careful thought.3NPS KFintech. National Pension System – Annuity Plan
- Annuity for life pays a fixed pension for as long as you live, and payments stop entirely at your death. Because the insurer has no obligation beyond your lifetime, this plan usually delivers the highest monthly amount.
- Annuity for life with spouse continuation pays you for life, then continues payments to your spouse after your death. The spouse’s pension may be the same or reduced, depending on the contract. Payments end when the second person dies.
- Annuity for life with return of purchase price pays a monthly pension and returns the original amount used to buy the annuity to your nominees when you die. The monthly figure is lower, but the capital stays with the family.
- Annuity for life with spouse continuation and return of purchase price combines both protections. You get a pension for life, your spouse continues it after you, and the purchase price goes to the nominees after the surviving spouse dies. The monthly payout here is the lowest, but the protection is the broadest.
- Annuity for life with coverage of all family survivors extends pension coverage beyond a spouse to other dependents, with the purchase price eventually returned to a nominee or child.
Some providers also offer plans with a guaranteed payment period of 5, 10, 15, or 20 years. If you die inside that window, your nominees continue receiving the pension until the period ends, after which the plan converts to a standard lifetime annuity. Not every insurer offers every variant, so compare across providers before signing.
Payout Frequency Options
Government subscribers receive the pension monthly. Non-government subscribers can choose monthly, quarterly, half-yearly, or yearly payouts.4NPS Trust. Functions of ASP Monthly suits regular household expenses; longer intervals may suit subscribers with other recurring income who prefer a larger amount less often. The total annual pension does not change with the frequency — only how it is split across the year.
What Determines Your Pension Amount
The pension figure that lands in your account is driven by a few things, and the biggest is simply how much of the corpus you put toward the annuity. A subscriber who allocates ₹20 lakh will receive roughly double the pension of one who allocates ₹10 lakh, all else equal.
The annuity rate offered by the insurer is the second major factor. Rates across PFRDA-empanelled providers typically sit between about 5.5% and 7.5% a year, depending on the insurer, the plan type, and prevailing interest rates. These rates are generally locked in for life once the contract is signed, so the rate environment on the day you buy matters a great deal. Even half a percentage point can compound into lakhs across a 20- or 25-year retirement.
Your age at purchase also matters. A 60-year-old receives a higher monthly pension than a 55-year-old retiring early, because the insurer expects to pay for fewer years. On a joint life plan, the spouse’s age factors in too; a younger spouse extends the insurer’s liability and lowers the monthly amount. The plan type closes the picture: any variant that returns the purchase price or covers a surviving spouse will pay less per month than a straight life-only annuity.
Given how much rates vary, get quotes from several empanelled providers before committing. As of late 2025, PFRDA has empanelled 15 insurance companies as Annuity Service Providers, including Life Insurance Corporation of India, SBI Life, HDFC Life, and ICICI Prudential Life.5NPS Trust. Annuity Service Providers Empaneled with PFRDA A small rate difference on paper becomes meaningful when you are locked in for decades.
Deferring Your Annuity Purchase
You do not have to buy the annuity the day you turn 60. PFRDA allows subscribers to defer the purchase until as late as age 85, keeping the funds invested in NPS during the deferral period.6NPS Trust. Deferment This can suit you if you expect interest rates to rise, since a higher rate at purchase means a bigger pension for life, or if you have other income early in retirement and do not need annuity income immediately.
During deferment, your corpus continues to be managed by the pension fund and stays exposed to market movements. That is the trade-off: the chance of a higher rate or a larger corpus later, against the risk that markets could erode your savings before you convert. The lump sum portion can be taken immediately or spread out while the annuity portion stays invested.
How Annuity Income Is Taxed
NPS carries favorable tax treatment during accumulation, and that mostly carries into exit. The pension payments themselves, though, are taxed as ordinary income.
- The lump sum you withdraw at normal exit is tax-exempt up to 60% of the accumulated pension wealth under Section 10(12A) of the Income Tax Act. For non-government subscribers now allowed to withdraw up to 80%, the tax treatment of the additional 20% beyond the existing 60% exemption remains under discussion, so watch for clarifications from the Income Tax Department.
- The portion of the corpus transferred to the insurer to buy the annuity is tax-exempt at the point of purchase. You do not pay tax when that amount moves to the insurance company.1NPS Trust. FAQs for Exit from National Pension System
- Each monthly pension payment from the annuity is taxable as income in the year you receive it, at your applicable slab rate. The annuity provider may deduct TDS before crediting your account. If you have other income such as rent or consulting fees, the pension stacks on top and can push you into a higher slab.
The practical takeaway: NPS gives you tax breaks going in and on the lump sum coming out, but the pension itself is taxed like salary. Factoring this into your lump-sum-versus-annuity split can help you manage your effective tax rate in retirement.
How to Start Your Annuity Payout
The exit process involves paperwork, verification, and a fund transfer before the first pension arrives.
Documents You Will Need
Before initiating exit, gather your Permanent Retirement Account Number (PRAN), a valid identity proof such as a passport or Aadhaar card, address proof, and your bank account details with the IFSC code. You will also need to decide in advance which Annuity Service Provider and which plan type you want. These go on the exit form and are difficult to reverse once the policy is issued.
Fill the exit form carefully. It is your formal instruction to NPS Trust to liquidate your investments and transfer the annuity portion to the chosen insurer. Mismatches between PRAN details and your identity documents are the most common cause of processing delays.
Submission and First Payment
Submit the exit request through the Central Recordkeeping Agency system or through an authorized Point of Presence. Your Nodal Office or the designated intermediary verifies the documentation and checks that your lump sum and annuity allocation meets the regulatory minimums for your subscriber category and exit type. Wrong percentages, missing documents, or mismatched details lead to rejection and resubmission.
Once verified, NPS Trust transfers the designated funds electronically to the insurer. The insurer creates your annuity policy and sets the payment schedule, and the first pension typically arrives within a few weeks of the fund transfer. You will receive a policy document confirming the terms, the pension amount, and the payment schedule.
If Your Pension Payments Go Wrong
Delays, incorrect amounts, and unresponsive insurers do happen, particularly in the early months. PFRDA runs a tiered grievance process for exactly these situations.7NPS Trust. Procedure for Handling Escalated Grievances in NPS
Raise the complaint first with the Annuity Service Provider. If the insurer does not resolve it within 30 days, or if the resolution is unsatisfactory, escalate to NPS Trust by email, letter to the Grievance Redressal Officer, or through the Central Grievance Management System using your CRA login. Include your PRAN, a clear description of the issue, what the insurer told you, and supporting documents.7NPS Trust. Procedure for Handling Escalated Grievances in NPS NPS Trust aims to respond within 30 days. If that still does not fix it, the next step is the PFRDA Ombudsman.