How will the PFRDA's rule to allow buying multiple annuities from the same insurer benefit NPS subscribers?

The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a significant rule change for National Pension System (NPS) subscribers. NPS subscribers will soon have the option to purchase multiple annuity schemes from the same life insurance company.

This change aims to provide subscribers with a broader range of annuity options and optimize their retirement income. In this article, we will explore the implications of this rule change for investors and the benefits it brings.

What are annuities in NPS?

The National Pension System (NPS) is a retirement savings scheme that was launched by the Government of India in 2004. The NPS is a voluntary, defined contribution scheme, which means that the subscriber contributes a certain amount of money each month and the returns on the investment are not guaranteed.

When an NPS subscriber reaches retirement age, they can choose to purchase an annuity from an insurance company. An annuity is a financial product that provides a stream of income for a specified period of time.

What changes does the new rule bring?

Under the current rule, NPS subscribers are only allowed to purchase a single annuity scheme from an annuity service provider (ASP) at the time of exit from the NPS. This limitation restricts the choice available to subscribers and their ability to customize their retirement income. Subscribers have to select one annuity scheme from one ASP, which may not have aligned with their specific requirements and preferences.

With the latest rule change, NPS subscribers who earmark an annuity corpus of more than ₹10 lakhs will have the option to purchase multiple annuity schemes from the same ASP. Each annuity scheme can be purchased using ₹5 lakhs from the annuity corpus. This change provides subscribers with the flexibility to diversify their annuity investments and tailor their retirement income to better suit their needs.

How does it benefit the investors?

Increased choice and customization: The ability to purchase multiple annuity schemes from the same ASP empowers NPS subscribers with a wider range of options. Investors can diversify their annuity investments and choose schemes that align with their risk tolerance, income requirements, and future financial goals.

Optimize retirement income: By having multiple annuity schemes, investors can optimize their retirement income. They can select different types of annuities with varying payout structures, such as immediate annuities, deferred annuities, or a combination of both. This flexibility allows for better income planning and management during retirement.

Tailored risk management: Different annuity schemes offer different features and benefits. With the option to purchase multiple annuities, investors can manage their risk exposure more effectively. They can allocate their annuity corpus across schemes with varying risk profiles, ensuring a balanced approach to risk management.

Commenting on the same, Viral Bhatt of Money Mantra said, “PFRDA's decision to allow NPS subscribers to buy multiple annuity schemes from the same service provider is a positive step. ASPs will now have to compete with each other to offer the best annuity products to NPS subscribers. This will ultimately benefit subscribers, as they will be able to get better value for their money.”

“Increased competition is likely to lead to lower costs for NPS subscribers. This is because ASPs will be under pressure to offer competitive prices in order to attract customers. It is also likely to lead to improved customer service. This is because ASPs will be under pressure to provide high-quality service in order to retain customers. Overall, the new rule change is a positive step for NPS subscribers,” he added.

Adding her views, Shilpa Arora, Co-Founder & COO, Insurance Samadhan said, “This is a good initiative, especially for people planning their estate. If one has three children then the purchase price can be nominated to different children. It will avoid unnecessary confusion after death.”

“This can also benefit people who can maximise their annuity as per their needs. For example, if the monthly requirement is ₹50000 only then one annuity can be bought for ₹50000 under monthly mode and the rest of the annuity can be bought under annual mode which will be higher in value,” she added.

The PFRDA's decision to allow NPS subscribers to purchase multiple annuity schemes from the same life insurance company brings significant benefits for investors. The new rule provides subscribers with increased choice, customization, and flexibility in managing their retirement income.