Described as flexible, portable, tax-efficient, simple, regulated, transparent and online, the National Pension System, or NPS, was designed to provide pensions for the general public who would choose to contribute to the scheme for financial independence in their old age.
Now assume that you are just 25 and you would be using the NPS to ensure a pension of Rs 1 lakh a month.
NPS offers any contributor to invest in equities that could generate considerable returns in the long term. It has been designed to ensure income even for those who wake up to the need for retirement planning at an advanced age, say in the early forties.
NPS: How to earn Rs 1 lakh pension
Therefore, beginning at 25 will give you a head start.
An age-wise analysis of the new subscribers who joined NPS in FY24 showed that 43.8% belonged to the 18-28 age group.
Like any other scheme, the returns from NPS would be decided by the corpus one can manage to accumulate at retirement.
The rule states that 40% annuity purchase is mandatory currently. But one can raise it to a higher share to ensure a steady income for the future. This annuity amount will provide a regular pension after retirement.
Keep 50% as annuity
If one withdraws 50% of the accumulated amount as a lump sum, then the other half can be used to buy annuity.
Let’s check the arithmetic. Say a person is born just before the turn of the century and is just 25 years of age.
Conscious of retirement planning, he/she invests Rs 18,000 a month in the NPS. The expected return on investment is a modest 8%. If this rate is higher the total arithmetic immediately changes in favour of the NPS contributor.
The arithmetic
The nominal invested amount would stand at Rs 75.60 lakh.
The pension wealth that will be generated is Rs 4.15 crore.
If he/she withdraws 50%, he/she would be withdrawing a lumpsum of more than Rs 2.07 crore.
The rest would generate a monthly pension for the candidate. If we assume a 6% return on the annuity portion, it would give him a return of Rs 1.03 lakh per month.
One has to remember this pension will be only from NPS. If he invests the lumpsum of Rs 2.07 crore judiciously, it can easily generate substantial returns for him/her.
The NPS was launched in January 2004 and was thrown open to the public in 2009. About 9.37 lakh subscribers joined the National Pension System in FY24, 13.6% higher than those who joined in FY23. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
