Subscribers to the New Pension System (NPS) would have a choice of six insurance companies from which they can buy annuity products after exiting the scheme. Annuity products are those designed to provide payments to holders at specified intervals, usually a year.
The six insurance companies the Pension Fund Regulatory and Development Authority has empanelled are Life Insurance Corporation of India (LIC), SBI Life Insurance, ICICI Prudential Life Insurance, Bajaj Allianz Life Insurance, Star Union Dai-ichi Life Insurance and Reliance Life Insurance.
Under NPS norms, a maximum of 60 per cent of the corpus accumulated at the time of exiting the scheme, usually when one is 60 years old, can be withdrawn. However, at least 40 per cent of the corpus has to be utilised to purchase an annuity product.
For government employees, at the time of retirement, the annuity should provide for pension during the lifetime of the employee. It should also provide for his dependent parents and his spouse.
The individual would receive a lump sum of the remaining pension wealth, which he would be free to utilise in any manner. Individuals would also have the flexibility to leave the pension system before the age of 60. However, in this case, the mandatory annuitisation would be 80 per cent of the pension wealth.
Under the previous pension system, employees would get assured pension. However, in NPS, though the contribution is defined, the returns may not be assured. Central government employees joining from January 1, 2004, have to choose NPS. Subsequently, many states also joined NPS. Later, the government threw open NPS to all citizens. However, in this case, the government does not have any obligation to contribute. Only in the case of poor citizens does the government pay Rs 1,000 a year for the initial years.