The Pension Fund Regulatory and Development Authority (PFRDA) has proposed a change in NPS (National Pension System) rules to IRDAI (Insurance Regulatory and Development Authority of India). As per the proposed plan, PFRDA has requested IRDAI to allow NPS pensioners to port their annuity plans. Note that porting of annuity plans was allowed by IRDAI a few years ago.
If the proposal goes through, if an NPS pensioner is not happy with their annuity rate, in that case, they would be allowed to switch to another annuity plan offered by a different life insurance company.
“We have held discussions with IRDAI and also with the service providers to allow portability. It is in a preliminary stage of discussion,” PFRDA chairperson Supratim Bandyopadhyay said, news agency PTI reported.
If you have invested in NPS, the following sections could answer your doubts. Read on…
How does an Annuity Plan Work for NPS Subscribers?
Currently, it is compulsory for NPS subscribers to use at least 40% of the accumulated corpus (upon scheme maturity) to buy an annuity or pension plan from an insurance policy provider. The annuity plan provides a regular stream of income for individuals post-retirement. Here’s how an annuity plan works:
You utilise at least 40% of the corpus to purchase an annuity plan from an insurance company
The money invested to buy the plan stays with the insurer, while the insurer pays out a specific sum periodically as a pension – monthly, quarterly and annually
What does it Mean for NPS Subscribers?
For loans and credit cards, most issuers/lenders provide a balance transfer facility wherein you have the option to switch your existing loan or card balance to another lender under favourable terms and conditions. This switch or porting to another service provider is applicable for health insurance plans too (depending on the insurance company). However, currently, no such porting facilities are applicable for annuity plans.
Currently, you are not allowed to switch your annuity plan, except for the cooling-off period of 15-20 days.
As per PFRDA, many NPS subscribers purchase annuity plans in a hurry only to regret it later. The proposed change would help subscribers to switch to a better plan with higher returns.
The current annuity interest rates vary between 5.39% and 6.81%.
The proposal was still at the discussion stage at the time of publication of this report.
If the proposal comes to fruition, NPS subscribers would have the benefit to move their annuity plans to another insurance company at a higher interest rate. The implementation of this proposed plan could benefit thousands of NPS subscribers. However, it’s still unclear how the porting facility would work.
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