The minimum amount to be contributed in NPS is Rs 6,000 annually. In case of annuity plans, it is between Rs 18,000 and Rs 24,000.
New Delhi: Retirement planning is absolutely essential to ensure that you have saved enough money by the time you retire so that you are no dependent on anyone financially. Government-backed NPS is one of the best investment option to build a retirement corpus. Administered by the Pension Fund Regulatory and Development Authority (PFRDA), it offers tax-saving benefits to the subscribers.
Aside from NPS, annuity plans are another retirement investment option. While the National Pension Scheme (NPS) is voluntary investment scheme meaning a subscriber can contribute at any point of time in a Financial Year and also change the amount he wants to set aside and save every year., annuity plans help investors get regular payment for life after making a lump sum investment.
Investment:
Under annuity schemes, the life insurance company invests the money of the investor and pays back the returns generated from it. Some investors may prefer investing in annuities as it allows piling a larger amount of cash.
NPS offers you two approaches to invest in your account- Active choice and Auto choice. In Active choice, Subscriber selects the allocation percentage in assets classes, however, in Auto choice, funds are automatically allocated amongst asset classes in a pre-defined matrix, based on the age of the subscriber. After selection of pension fund manager, Subscriber also has to exercise the choice of investment.
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NPS vs Annuity:
Minimum contribution: The minimum amount to be contributed in NPS is Rs 6,000 annually. In case of annuity plans, it is between Rs 18,000 and Rs 24,000.
Investment mode: In NPS, up to 75 per cent of investments can be done in equity meaning investors can earn long term capital gains. Annuity plans, on the other hand, do not offer pure equity funds.
Penalty: In case of non-payment in NPS, the option of re-activation is available by paying a nominal penalty. However, the annuity plan may lapse if the premiums are not paid on time or within the grace period. Policyholders can revive it only after paying all pending premiums within the revival period.
Maturity: After NPS reaches maturity, withdrawal option of 60 per cent of the corpus is available and 40 per cent is to be converted to an annuity. Annuity plans, on the other hand, allow investors to withdraw only one-third of corpus and for balance, 66 per cent annuity is required to be bought.
NPS vs Annuity plans: Conclusion
As per experts, NPS scores over annuity plans because of low costs and choice of investment funds. On a global scale, NPS is the cheapest pension investment product owing to economies of scale in operations of the system architecture. NPS continues to score over other products in the category due to low costs which over the long term can magnify into a huge advantage.
Additionally, the accumulated corpus over the years provides great compounding benefit which leads to large corpus. Also, NPS is better for retirement purposes owing to the minimum contribution and partial withdrawal benefits.
