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Kolkata: The National Pension System, or NPS, is a voluntary retirement savings scheme that is open to all citizens of Indian. It was introduced in 2004 for government employees and then, five year later, thrown open to all citizens. It helps an individual to invest for his/her future. The most significant point is that this scheme allows all to invest and not only those who are employed/self-employed.

Significantly, NPS is a market-linked scheme, which is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). However, employers are also free to contribute to the NPS accounts of their employees. A very significant extension of the NPS is NPS Vatsalya, which was inaugurated in September 2004. It allows a parent or a legal guardian of a kid to open an account soon after his/her birth. But for the moment, we will confine ourselves to the NPS only.

Check the calculation using NPS calculator

Thanks to the online (and free) NPS calculator, one can calculate the estimated amount one can get after investing in the pension fund for decades. Accordingly, one can plan his/her finances and investments. Planning for the post retirement years is not an easy task, given the big time period and factors such as inflation and how stead the investments can be.

However, a ballpark figure can always be obtained with the help of these calculators. Let’s consider the following scenario. A young man creates an NPS account create a lumpsum corpus to be paid at retirement of Rs 3 crore or slightly more. he/she also wants to get a monthly pension of Rs 1 lakh. The NPS calculator will tell him what to do.
Age: 25 years
Expected return on investment: 10%
Percentage of annuity purchase: 40%
Expected return on annuity: 6%

With these parameters, the calculator will tell you that if the young man starts investing Rs 13,500 per month, he/she will get a lumpsum of Rs 3,10,09,041 (Rs 3.10 crore) and a monthly pension of Rs 1,03,363 (Rs 1.03 lakh).

Calculation for different scenarios

The point to note here is the expected return on investment is a critical factor. If the return climbs to 11%, the person will get a lumpsum of Rs 4,02,85,127 (Rs 4.02 crore) and a monthly pension of Rs 1,34,284 (Rs 1.34 lakh).

There is another point to note. If the person keeps 60% of the entire fund for annuity, he/she will get a lumpsum payment of Rs 2,06,72,694 (Rs 2.06 crore) and a monthly pension of Rs 1,55,045 (Rs 1.55 lakh). Also this scenario assumes a return on investment of 10%.

Though retirement planning is a need for everyone, it is advisable that one consults a personal finance expert who can tailor one’s investments according to one’s family composition, needs, goals, lifestyle, inflation etc.