Definition
Deferred Annuity
A deferred annuity is a pension product where the buyer pays premiums (lump sum or instalments) now and the regular income begins after a chosen deferment period.
Deferred annuities let savers accumulate a corpus during the deferment phase and convert it into a pension during the vesting phase, making them suitable for those still some years from retirement. During deferment, the money grows at a rate the insurer specifies.
In India, deferred annuity plans appeal to those seeking guaranteed lifelong income that starts at a future date, locking in today's annuity rates for tomorrow's pension. As with all annuities, the income is taxable. Buyers should compare the guaranteed deferred rate against alternatives like NPS plus a later immediate annuity.
Related terms
- Vesting AgeVesting age is the age at which a deferred pension or annuity plan matures and the policyholder begins receiving regular income.
- Immediate AnnuityAn immediate annuity is a pension product where the buyer pays a lump sum and starts receiving regular income almost immediately, typically from the next payout cycle.
- Return of Purchase PriceReturn of Purchase Price (ROP) is an annuity option where the original lump sum used to buy the annuity is returned to the nominee on the annuitant's death.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.