NPS Scheme: National Pension System is a great option for private sector employees to plan retirement corpus as well as monthly pension. Retirement planning should also start with the initial days of the job so that you can build a substantial retirement corpus in the long run. A large retirement fund is also available in lumpsum upon retirement on investment in NPS. If a person starts investing Rs 10,000 monthly in NPS at the age of 21, they can start getting a monthly pension of Rs 1.15 lakh on retirement.
Let’s say an investor joins a job at the age of 21 and starts a monthly investment of Rs 10,000 in NPS. In NPS, you have to invest till the age of 60 years which means in this case, it will be for 39 years. Here’s the calculation:
Monthly investment in NPS: Rs 10,000 (Rs 1,20,000 per annum)
Total contribution in 39 years: Rs 46.80 lakh
Estimated return on investment: 10%
Total corpus on maturity: Rs 5.76 crore
Annuity Purchase: 40%
Estimated Annuity Rate: 6%
Pension at the age of 60: Rs 1.15 lakh per month
(Note: This calculation has been done on the calculator of the NPS Trust. The figures for pension and funds are approximate. Actual figures may vary.)
In NPS, if you take a 40 per cent annuity (minimum requirement) and the annuity rate is 6 per cent per annum, then after retirement you will get Rs 3.45 crore in lump sum and Rs 2.30 crore will go into annuity. From this annuity amount, you will get a pension of Rs 1,15,217 every month. The higher the annuity amount, the higher the pension you will get.
Annuity is a contract between you and the insurance company. Under this contract, it is necessary to buy an annuity of at least 40 per cent of the amount in the National Pension System. The higher the amount, the higher will be the pension amount. The amount invested under annuity is received in the form of pension after retirement and the balance amount of NPS can be withdrawn in a lump sum.
Any citizen of India whose age is between 18 to 65 years can invest in NPS after some necessary procedures. The responsibility of investing the amount deposited in NPS is given to the pension fund managers registered by PFRDA. They invest your money in equity, government securities and non-government securities apart from fixed income instruments.
Under NPS, under section 80CCD(1B) of the Income Tax Act, the benefit of tax exemption is available on investment up to Rs 50,000. NPS can also help you in extra tax savings if you have completed the limit up to Rs 1.5 lakh under section 80C. Withdrawal up to 60 per cent of the amount on maturity of this plan is not taxed.