Choosing Your NPS Annuity: The Seven Pension Variants from Empanelled Service Providers

At the moment you exit the National Pension System, a single decision shapes the rest of your retirement: a mandatory slice of your corpus must be converted into a lifelong pension, and you must pick the shape of that pension from exactly seven variants offered by PFRDA-empanelled Annuity Service Providers (ASPs). The choice is irreversible once the annuity is issued, so it deserves as much attention as the decades of contributions that built the corpus.

This guide sets the seven variants against each other for the drawdown phase, applies the exit rules as rewritten by the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025 (notified 19 December 2025), and works a Rs 1 crore corpus through tax and pension arithmetic. Every figure traces to PFRDA or the Income-tax Act; where a number depends on a live ASP quote, it is flagged as illustrative.

The Scheme Explained

NPS is a defined-contribution pension: your corpus is whatever your contributions plus market returns accumulate to, not a formula-based promise. At normal exit on superannuation (age 60, extendable to a maximum exit age of 85), the system splits that corpus into a lump sum you keep and a mandatory annuity you must buy. You can model the accumulation side first with the NPS calculator.

The split changed on 19 December 2025, and the change is sector-specific. For non-government subscribers (the All Citizen Model and the Corporate Sector), the amendment raised the maximum lump sum to 80% of the corpus, leaving a minimum of 20% to be annuitised. Government-sector subscribers stay on the long-standing 60% lump sum and 40% minimum annuity, and NPS-Lite also remains at 60/40. The live PFRDA all-citizen FAQ page still displays the pre-amendment 40% annuity figure, so treat the 2025 regulations, not the un-refreshed FAQ, as the governing text.

Small corpuses escape annuitisation entirely. A non-government subscriber whose total corpus is Rs 8 lakh or less at exit may take 100% as a lump sum, up from the earlier Rs 5 lakh ceiling. Between Rs 8 lakh and Rs 12 lakh, a lump-sum band of up to Rs 6 lakh applies with the balance routed through systematic withdrawal. Premature exit before 60 is stricter: the maximum lump sum is 20% with 80% annuitised, though the full amount is payable if the corpus is Rs 5 lakh or less, and the amendment removed the earlier five-year lock-in for premature exit.

The mandatory portion is handed to an ASP, a life insurer empanelled by PFRDA, which issues the pension. Subscribers compare pension quotes across ASPs on the Central Recordkeeping Agency (CRA) platform before confirming, because the rate is a market quote that varies by provider, age and the variant chosen; it is not a government-set rate. All ASPs must offer the same seven variants, so the comparison is genuinely like-for-like.

The Seven Pension Variants

The variants trade a higher starting pension against protection for a spouse or the return of your capital. A pension paid only to you for life, with nothing left over, buys the most monthly income per rupee; adding joint-life cover or a return of the purchase price lowers it.

Variant 1 maximises current income but strands the capital, so it suits a single retiree with no dependants and other assets to bequeath. Variants 4, 5 and 7 are the default choice for a married subscriber, because the spouse's pension continues after the first death; variant 7 additionally returns the full purchase price to heirs, which is why its starting pension is the lowest of the seven. The 3% escalation in variant 3 is simple, not compounded, so a pension starting at Rs 10,000 a month rises by Rs 300 each year rather than compounding.

Tax on Withdrawal

Three separate tax rules govern an NPS exit, and conflating them is the most common error. The lump sum, the annuity income and any earlier partial withdrawal are each treated differently under the Income-tax Act, 1961.

The lump sum is exempt under Section 10(12A), but only "to the extent it does not exceed sixty per cent of the total amount payable" on closure or opting out; that 60% ceiling has applied since 1 April 2020. This is where the 2025 amendment creates a trap for non-government subscribers. PFRDA raised the withdrawable lump sum to 80%, but PFRDA has no authority over the Income-tax Act, so Section 10(12A) still caps the exemption at 60%. A subscriber may therefore withdraw 80% while the statutory exemption covers only 60%. Do not read "80% withdrawable" as "80% tax-free": state the two ceilings separately and confirm the treatment of the 60%-to-80% slice with a tax adviser, because no Finance Act alignment raising the exemption to 80% has been enacted as at October 2026.

The annuity pension is fully taxable. The amount used to buy the annuity is not taxed at the point of purchase, but every pension instalment the ASP later pays is taxable in the year of receipt at your applicable slab. Under the new regime for FY 2025-26, income up to Rs 4 lakh is nil-rated and the first Rs 60,000 of tax is rebated under Section 87A for total income up to Rs 12 lakh, so a modest NPS pension can land in a low or zero effective band if it is your main income. The commutation of pension concept that applies to some defined-benefit schemes does not apply to the NPS annuity, which is why the pension stream is taxed in full as it arrives.

Partial withdrawals taken during the accumulation phase sit under a different, unchanged rule. Section 10(12B) exempts up to 25% of the subscriber's own contributions (excluding employer contributions and investment gains), available after a minimum of three years in the scheme and up to four times before age 60. Separately, the Rs 50,000 deduction under Section 80CCD(1B) that many subscribers claim while contributing is available only under the old tax regime; it cannot be claimed in the new regime, so retirees still contributing should check which regime they are on before counting on it.

Worked Drawdown

Consider an All Citizen Model subscriber retiring at 60 on 1 April 2026 with a corpus of Rs 1 crore. The accumulation decisions are done; the drawdown choice is how much to annuitise and under which variant. The table below contrasts the conventional 60/40 split with the 80/20 split now permitted for non-government subscribers after the 19 December 2025 amendment.

Under the 60/40 route the full Rs 60 lakh lump sum sits inside the Section 10(12A) 60% exemption, so it is received tax-free. Under the 80/20 route the first Rs 60 lakh is likewise exempt, but the extra Rs 20 lakh withdrawn exceeds the 60% ceiling; its treatment does not follow automatically from 10(12A), so a subscriber choosing the larger lump sum should budget for that Rs 20 lakh being uncertain rather than assume it is exempt. Use the retirement drawdown calculator to test how long each lump sum lasts against your spending.

Now the annuity leg. Suppose the subscriber annuitises Rs 40 lakh. The table below is purely illustrative, to show how the seven variants rank against each other; it does not use a quoted or guaranteed rate, and real figures must be pulled live from the CRA platform at the time of exit. The illustrative annuity rates fall as protection is added, exactly as the variant design predicts.

The ordering is the point, not the rupee amounts: the life-only annuity in variant 1 pays the most but leaves nothing for a spouse or heirs, while variant 7 pays the least yet returns the entire Rs 40 lakh to the family on the second death. A married 60-year-old typically values the spouse continuation in variants 4, 5 or 7 over the roughly 0.6 percentage-point-higher starting rate of variant 1, because the first death often arrives a decade or more before the second.

For the Rs 60 lakh (or Rs 80 lakh) lump sum, a common drawdown comparison is a fixed-income ladder against the annuity. A Senior Citizens' Savings Scheme deposit earns 8.2% for the October-December 2026 quarter (Q3 FY 2026-27), which is above the illustrative annuity rates above, but SCSS pays only for a fixed term and returns the principal, whereas the annuity pays for life regardless of how long you live. That longevity transfer is the whole reason NPS mandates annuitisation rather than leaving the entire corpus liquid. To weigh a guaranteed pension against drawing down an invested lump sum yourself, run both through the annuity vs SWP calculator.

Over a multi-year horizon the two legs behave differently. The annuity pension is level (or escalating at 3% simple in variant 3) and fully taxable each year, so its real value erodes with inflation unless you chose the escalating variant. The lump sum, if invested, is yours to draw flexibly but carries market and sequence risk; gains on equity portions would attract the 12.5% long-term capital gains rate above the Rs 1.25 lakh annual exemption. Matching a stable annuity floor against a flexible invested lump sum is the core drawdown judgement, and it is why the 20%-versus-40% annuitisation choice now open to non-government subscribers matters so much.

FAQ

Can I change my NPS annuity variant after it starts?

No. Once the ASP issues the annuity, the variant and the provider are locked for life, which is why PFRDA requires subscribers to compare quotes across all ASPs on the CRA platform before confirming. The seven variants are fixed by PFRDA and offered identically by every empanelled ASP, so the only live differences are the quoted rate and service.

How much of my NPS corpus must I annuitise after the 2025 amendment?

After the 19 December 2025 amendment, a non-government subscriber (All Citizen or Corporate Sector) must annuitise a minimum of 20% of the corpus and may take up to 80% as a lump sum. Government-sector subscribers and NPS-Lite remain at a 40% minimum annuity and 60% maximum lump sum.

Does the 60% tax exemption cover the full 80% lump sum?

No. Section 10(12A) exempts the lump sum only up to 60% of the total amount payable, a ceiling in force since 1 April 2020 and unchanged by the PFRDA amendment. So a non-government subscriber can withdraw 80% but only 60% is covered by the statutory exemption; the treatment of the 60%-to-80% slice should be confirmed with a tax adviser, as no Finance Act change to 80% has been enacted as at October 2026.

Which variant gives the highest monthly pension?

Variant 1, the life annuity paid only to the annuitant with no return of capital, gives the highest starting pension because the insurer retains the corpus on death. Adding a 50% or 100% spouse pension (variants 4 and 5) or a return of purchase price (variants 6 and 7) lowers the rate, with the joint-life-plus-ROP variant 7 paying the lowest of the seven.

Is my NPS annuity pension taxable?

Yes. The money used to buy the annuity is not taxed at purchase, but every pension instalment is taxable in the year of receipt at your slab rate under the Income-tax Act, 1961. Under the FY 2025-26 new regime, the Section 87A rebate of up to Rs 60,000 for total income up to Rs 12 lakh can reduce or remove the tax if the pension is your main income.

Can I withdraw my whole NPS corpus without buying any annuity?

Only if it is small. A non-government subscriber whose corpus is Rs 8 lakh or less at normal exit may take 100% as a lump sum with no annuity, up from the earlier Rs 5 lakh threshold. Above that, the mandatory minimum annuitisation of 20% (non-government) or 40% (government) applies.

What happens to my annuity if I die soon after it starts?

It depends on the variant. Under variant 1 (life annuity) the pension simply stops, whereas variants 6 and 7 return the purchase price to your nominee, and variants 4, 5 and 7 continue a pension to your spouse. This is the single most important reason to match the variant to your family situation before confirming with the ASP.