Annuity finality

Buying an annuity is not like buying a mutual fund unit that can be sold whenever needed. It is a one-way door.

The workbook states it directly: "The annuity once purchased is final, and the principal invested can neither be redeemed nor can a change be made in the type of annuity chosen."

Once the insurance company has the money and the contract is signed, the retiree cannot ask for the lump sum back, and cannot switch from, say, a life-only annuity to a joint-life annuity with a spouse. The choice made on day one is the choice for life.

The finality rule sits inside the wider set of annuity features the workbook lays out:

• The annuitant chooses the payment mode — monthly, quarterly, half-yearly or annual — but this is a mode choice, not a right to unwind the contract.
• The annuity rate is guaranteed for the entire period once fixed at purchase, reviewed periodically by IRDAI for new business, but not revisited for an annuity already bought.
• Where the annuity is bought with NPS money, the finality rule sits alongside sector-specific annuitisation minimums: at least 40% of the corpus must be annuitised for Government-sector subscribers and at least 20% for Non-Government subscribers on normal exit, with every PFRDA-empanelled Annuity Service Provider required to offer at least five standard variants — life annuity, life annuity with return of purchase price, joint-life with and without return of purchase price, and a family-income option.
• Because the decision cannot be revisited, the workbook's risk warning is blunt: fixed annuities carry high surrender charges and do not keep pace with inflation, so the real value of a fixed annuity payment declines over time — a risk the annuitant is locked into once the contract is signed.

Mrs Kapoor, on exiting the NPS, has an accumulated pension wealth of Rs 20 lakh as a Non-Government subscriber. At least 20%, or Rs 4 lakh, must go into an annuity. She chooses a life-only annuity with no return of purchase price, because it pays the highest monthly income among the options quoted.

Three years later her circumstances change — her spouse becomes financially dependent on her, and she would now prefer a joint-life annuity that continues paying him after her death. She cannot make that change. The Rs 4 lakh is locked into the life-only contract she selected: the principal cannot be redeemed, and the type of annuity cannot be switched. Her only route to protect her spouse now is a separate life insurance policy bought with other savings — the annuity itself offers no way back.

Chapter 6, section 6.2.2 (Distribution Products), states the finality rule as one line inside the annuity features table (Flexibility / Risks to Income). It is a compact, high-yield examinable fact: expect a direct true/false or fill-in-the-blank on whether an annuity, once bought, can be redeemed or changed.

• Finality applies to the type of annuity and the principal, not to the payment mode. The annuitant can still choose monthly, quarterly, half-yearly or annual payouts within the contract bought.
• This is not the same as the annuitisation percentage (40% for Government-sector, 20% for Non-Government-sector NPS subscribers) — that rule fixes how much must be annuitised; finality fixes what happens once it is.
• A fixed annuity's income does not rise with inflation. Combined with finality, an early, wrong annuity choice is very hard to correct later — the workbook's diversified income strategy therefore recommends deferring larger annuity purchases to later in retirement, once the choice is better informed.