In the budget for FY25, Finance Minister Nirmala Sitharaman has raised the tax deductibility of NPS contributions to 14% of the employer’s part for private sector employees from 10% earlier.
According to NPS (National Pension System) rules, one has to buy an annuity for a monthly pension with at least 40% of the accumulated corpus. The point is that this amount will serve as the principal on which returns will be used by NPS authorities to pay a monthly pension to the contributor.
Therefore, in any NPS calculator expectations of returns on annuity purchased are set. The default rate is set at 6%. Obviously, if the rate of return rises beyond 6%, the amount of pension will go up.
NPS calculator: How to reach Rs 1 cr pension amount
If one begins early, say from age 20, it is not difficult at all to build about Rs 1 crore of pension amount.
In fact, one need not even contribute Rs 3,000 a month to NPS. It will suffice to invest Rs 2,900 a month from the age of 20 and have a very modest return of 8%.
Under these circumstances, if one buys annuity with 40% of the corpus, one will reach a pension pool of more than Rs 1 crore (Rs 1,01,91,416).
If someone gets a 6% return, the monthly pension would work out to be Rs 20,383.
NPS Monthly pension, different scenarios
If someone buys annuity with 50% of the amount, the pension will move up to Rs 25,479.
Push it up to 60% and the pension will rise to Rs 30,574.
How to reach Rs 1.5 crore pension amount
If the contributor raises the monthly contribution to Rs 4,250 and begins at the same age, he/she would reach a pension wealth of 1,49,35,695 or almost Rs 1.5 crore.
Monthly pension, different scenarios
Keeping the expected return from the annuity at 6%, the monthly pension works out to Rs 29,871 in case the contributor buys annuity with only 40% of the corpus.
If he/she raises the share to 50% of the corpus and uses it to buy annuity, the amount of monthly pension will jump to Rs 37,339 for someone contributing Rs 4,250 every month to NPS.
Buying annuity with 60% of the corpus will push up the pension to Rs 44,807.
The National Pension System or NPS is primarily designed to provide a pension to a person after retirement. Most important, NPS is flexible enabling a contributor to decide the amount of pension. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
