Definition
Immediate Annuity
An 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.
Immediate annuities are the standard vehicle for converting retirement corpus into lifelong income in India, offered by life insurers and used when NPS subscribers annuitise part of their corpus at exit. The purchase price is non-refundable in the basic 'life annuity' option, which buys the highest payout rate.
Payout rates are locked at purchase and reflect prevailing interest rates and the annuitant's age, so timing the purchase matters. Variants include joint-life annuities for couples and annuities with return of purchase price to heirs. Annuity income is fully taxable as income in the recipient's hands.
Related terms
- Deferred AnnuityA 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.
- 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.
- National Pension SystemThe National Pension System is a regulated, market-linked retirement savings scheme where subscribers accumulate a corpus and annuitise part of it at exit.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.