Planning for your retirement is crucial as it determines the quality of life you lead after retiring from work. With India’s rising population, life expectancy, and healthcare costs, retirement planning becomes even more critical. The National Pension System (NPS) offers a solution to these issues by making retirement planning much easier.
NPS, a government-sponsored retirement savings scheme, aims to provide financial security to individuals after their retirement. Available in two tiers, NPS tier 1 and NPS tier 2, this pension fund scheme is offered by both the government and private entities. Designed to deliver post-retirement income to subscribers, NPS is one of the most common pension schemes offered in India.
If you are an NPS subscriber or planning to invest in the scheme, you might be curious about how much monthly pension you will get when you retire. Here are the factors that decide your monthly pension pay out from an NPS scheme.
- Age
The sooner you complete your NPS subscription and start investing, the more corpus you can accumulate, leading to a larger monthly pension pay out. Moreover, you can complete the online NPS account opening process with a few clicks through various online platforms and apps. This helps you start early and build up a sizable corpus through consistent contributions.
- Investment amount
There is no maximum limit on contributions you can make in NPS. However, it is advisable to invest a significant portion of your income regularly. The more you invest, the larger your corpus will become, which in turn will provide you with a higher monthly pension amount.
You can start a systematic investment plan or an SIP in NPS for regular and disciplined contributions. An SIP helps to automate your NPS investments, with the amount being debited automatically from your bank account on a specified date.
- Returns
The investment returns generated by the NPS scheme directly impact the monthly pension amount a subscriber receives.
In NPS, there are different asset classes, such as equity, government bonds, corporate debt, and alternative investment funds. Each comes with a different risk level and return potential. Aggressive investment options offer higher returns but also incur higher risk, while the conservative options offer more security with less risk and lower returns.
- Annuity and Annuity Service Provider (ASP)
Annuity is a fixed sum of money paid to an NPS subscriber at a set frequency. Your pension amount will depend on the amount of corpus accrued at retirement, the percentage of your corpus invested in annuity and the annuity rate offered by the annuity provider.
You can invest from 40% to 100% of your corpus in annuity. The higher the corpus invested in annuity, the higher the pension. Moreover, it is equally important to choose an ASP that offers high rates to maximise your pension amount.
An easy way to calculator your NPS
There are online NPS calculators that can quickly help subscribers calculate their future pension amount. Here is how to use it:
- Visit the official NPS website or the platform that offers the scheme
- Click on NPS scheme calculator or NPS calculator
- Select your age and the investment period
- Click on ‘Contribution’. Now choose the frequency and amount you wish to invest
- Enter the expected return rate on investment
- Enter the annuity rate and the percentage you want to invest in annuity
- Click on ‘Calculate’ and get an instant calculation of the pension amount you can receive from the NPS scheme
The amount of monthly pension you can expect from NPS depends on your age, contribution amount, years of contribution, investment choice, and annuity rates. By using the NPS calculator, you can easily compute your pension amount and plan your retirement accordingly.