Withdrawal and annuities

At 60, the NPS Tier I subscriber must use 40% of corpus to buy an annuity (mandatory) and can take 60% as lump sum. The 40% annuity can be from any of ~5 PFRDA-empanelled annuity providers (life insurers). Annuity types: Life with no return of purchase price (highest income), Life with return (income + heir gets corpus), Joint Life, Inflation-protected (rare).

Annuity yields: typically 5.5-7% per year for "life with return of purchase price" — much lower than equity but inflation-eroding. "Life without return" pays 8-10% but heirs get nothing. Choice depends on bequest motive and risk tolerance. Most subscribers choose "life with return" to leave something. Annuity providers: HDFC Life, LIC, SBI Life, ICICI Prudential, etc. Yields vary 30-50 bps; check at retirement. NPS provides a comparison portal at maturity. Below 60: partial withdrawal allowed for specified reasons (children's education/marriage, home, illness) — max 25% of own contribution, 3 times in lifetime.

A practitioner-grade insight: minimise NPS Tier I, maximise other vehicles. NPS Tier I locks 40% in annuity at sub-inflation yields — terrible for legacy and inflation. Better strategy: contribute up to the 80CCD(1B) ₹50K extra deduction limit (gives 30% tax saving) and any employer match (free money), but DON'T over-contribute. Use mutual fund SIPs and equity-tilted PPF for the rest. RIAs increasingly recommend this — counter-intuitive to NPS marketing.