NPS Calculator: Planning Your Pension Wealth

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As the name suggests, NPS calculator estimates how much you will receive as pension when you retire at age 60. This gives you an idea about how much to invest monthly, starting now, so as to receive a suitable corpus on retirement! 

A pension scheme gives you a fixed uniform income, for a set number of years after you retire. 

You pay a certain amount of premium every month into the pension fund. It earns an annual compound interest, which adds to your fund value. 

The annuity scheme of the pension plans is offered with the following investment instruments:

  • Life insurance policies,
  • PPF/ EPF,
  • Mutual funds, and
  • NPS or National Pension Scheme. 

What is NPS

NPS is a government recommended pension plan that can be availed by any Indian citizen aged between eighteen and sixty years of age. 

Investing in the National Pension Scheme is a mandatory requirement for central as well as state government employees, except for those in the armed forces. 

NPS is one of the government approved tax-saving plans that can be invested in by any taxpayer. 

It is controlled by the PFRDA or Pension Fund Regulatory Development Authority and its funds are managed by professional fund managers since 2008. 

Why was NPS Introduced

NPS was introduced for the government employees in 2004 to move the defined pension from ‘benefits’ to ‘contribution based’. 

Earlier pension was being paid to the government employees for 10 months, starting from the retirement date. 

It was calculated based on their work tenure and average emoluments. 

It was only in 2004 that the government made it imperative for its employees to contribute to NPS with government matching the amount simultaneously.

How does NPS Benefit an Individual Non-government Investor

Any Indian individual above 18 and below 60 years of age can voluntarily contribute to NPS or when his organization is investing in it for him too like EPF. 

This investment by the corporate for its employees is beyond the contributions to EPF. 

Wipro was one of the first private corporation to join in NPS! 

If an individual contributes to NPS because its company joined the scheme, the features of the pension plan would be as follows:

  • The company too would be making equivalent contributions to the scheme.
  • It will be structured based on the features of Tier-I. Therefore there will be no premature withdrawal.
  • You can claim deductions on the employer’s contribution to your NPS account under Section 80CCE. The maximum deduction cannot exceed 10% of your basic salary + DA.
  • You too can claim deductions against your contribution to NPS under section 80CCD. Again, the maximum deduction cannot be beyond 10% of your basic + DA.
  • Companies can claim tax exemptions by showing contributions to employee’s NPS accounts as expense in their P&L statement.
  • Minimum contribution to the NPS account is Rs.6,000 per financial year.
  • An investment charge of 0.0102% is levied on the total investment by government employees and 0.25% on private investors, that is paid to the NPS fund management houses. 

For withdrawals, before retirement or 60, you cannot withdraw an amount exceeding 20% of the invested money. 

After retiring or reaching 60, whichever happens first, you can withdraw up to 60% of the invested amount. 

Types of Schemes under NPS

Predominantly, there are two kinds of NPS accounts, Tier-I, and Tier-II, 

When you invest in a Tier-I account, there will be restrictions on premature withdrawals. These are basically opened when corporates invest towards their employee’s pension. 

Tier-II accounts are for voluntary investors and has no restriction placed on for premature withdrawal. 

But, to open a Tier-II account, one must already have an active Tier-I account. Also, the employer, whether government or private corporations, would not be contributing towards this account. 

NPS Lite or Swavalamban Scheme is a government initiative to provide pension to people who are financially challenged. 

From 2010 onwards, all NPS accounts opened in the FY 2010-11 will earn a benefit of Rs.1,000 every year from the government for the next three consecutive years. 

This benefit has been extended to NPS accounts opened in FY 2009-10 in case they clear the eligibility requirements for the same! 

Funds accumulated in NPS Lite account can be prematurely withdrawn without any conditions. 

NPS Calculator

This is an online tool that can be used to easily estimate the retirement fund you will getting at 60. 

The online NPS calculator also computes the amount of total interest earned over the years. 

You just need to feed in:

  • Your current age
  • Your retirement age
  • The amount you are investing monthly
  • Estimated Annuity interest rate, which is currently at 8%. 

Let us assume, MALINI, who is currently 36 and is expected to retire at 60, is investing Rs.10,000 per month in the NPS scheme. The expected Annuity rate of interest for her NPS fund is 8%. 

The NPS Calculator would give her the following result: 

Number of Invested Years

24

Amount Invested (sans interest)

Rs.2,880,000

Interest Earned

Rs.5,773,258.43

Total Amount Invested in NPS

Rs.2,880,000 + Rs.5,773,258.43 = Rs.8,653,258.43

Annual Pension

Rs.415,356.40

Monthly Pension

Rs.34,613.03

Withdrawable Amount on Maturity

Rs.3,461,303.37

  

Where can I invest in NPS

Top 7 banks of India offer Pension Plans that help you to invest in the NPS scheme. 

NPS Plans

6 Months Returns (in %)

1 Year Returns (in %)

3 Year Returns (in %)

5 Year Returns (in %)

HDFC Pension Fund

4

8.78

NA

NA

ICICI Prudential Pension Fund

3.91

8.84

9.47

10.59

Kotak Pension Fund

4.41

9.36

9.14

10.35

LIC Pension Fund

3.64

8.6

NA

NA

Reliance Capital Pension Fund

4.08

9.05

9.17

10.19

SBI Pension Fund

3.94

8.81

8.93

10.21

UTI Retirement Solutions

3.99

8.79

9.08

10.02

 

*The following returns are based on April 2015 figures.

**These contain all types of NPS accounts.

***The returns for 6 months and 1 year are absolute, whereas the returns for 3 and 5 years are compounded annually. 

How to Choose the Correct NPS Investment Options

How you select the NPS fund to invest in depends on you. You need to consider a few things before you make a final selection. 

  1. NPS funds can be invested in different investment options like fixed income and equity, known as ‘Asset Classes’. 

The Asset classes are categorized as Equity, Credit risk, and Government securities and can be differentiated on the basis of their rate of return and risk profile. 

Asset E are investments made in Equity based instruments. 

Asset G are investments in Government securities like State Government and GOI bonds. 

Asset C are basically investments in securities generating fixed income like FDs, corporate debts, liquid funds, etc. These instruments are Credit-risk tolerating fixed income securities. 

Asset E is a high return and equally high risk investment, when compared to Asset G. Asset G is a safe investment option though its rate of return is the most conservative of all three! 

  1. Next, you decide how the money will be distributed among the three Asset classes. 

If you manage the division by yourself it is termed as ‘Active’ and if you let the funds be distributed automatically in accordance to your age, it is known as ‘Auto’ investment in the ‘Life-cycle fund’. 

For those aged 18 to 35, Auto investment option would allocate 50% funds in E class, 30% of the funds in C class, and the remaining 20% in the G class. The percentage allocation would not change till the person crosses 35! 

For those aged 36 and above, the percentage of fund allocated in Asset classes  E and C would gradually decrease every year, whereas the allocation percentage would increase for class G. 

For investor aged 55 and above, this is the last allocation band and the percentage would remain steady as follows; 10% of the funds in class E, 10% of the amount in class C, and the balance 80% of the money in class G. 

  1. After this you will need to determine the pension fund you want to invest your money in. 

The PFRDA has appointed seven fund managers to manage the amount invested in NPS. 

Government employee accounts are managed by government appointed fund managers for amounts that are invested in either of the three instruments, UTI Retirement Solutions, SBI Pension Fund, and LIC Pension Fund. 

Other funds are invested in UTI Retirement Solutions, SBI Pension Funds, Reliance Capital Pension Fund, Kotak Pension Fund, HDFC Pension Fund, and ICICI Prudential Pension Fund, and are managed by the government recruited fund managers. 

NPS Tax Benefits

You can claim tax benefits for investing in NPS under Sections 80CCD(1), 80CCD(2), and 80CCD(1B). 

All the tax deductions, withdrawal and exit rules, and annuity restrictions only pertain to the Tier-I accounts of NPS. 

NPS Tier-II accounts have features similar to Mutual Funds.

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