The National Pension System or NPS is a measure to introduce a degree of financial stability for Indian citizens after they have retired. It was previously known as the National Pension Scheme. Anyone over the age of 60 is eligible to use the amount gathered in the pension corpus. You will need an NPS calculator to determine how much the total accumulation amounts to.
Any resident of the country who is between 18 and 60 years of age is eligible to build up a pension corpus. It is an investment and an asset after retirement. Since most people in India have private jobs with little security, they need a National Pension Scheme calculator. Pension schemes in the country are not market-linked instruments and earn sound returns.
What is the NPS Calculator?
One tool that can help you determine the returns on your NPS investments is an NPS calculator. You can provide a few simple details to get an idea of the retirement corpus you can accumulate over time. You can use the NPS calculator to see how much of a tax-free lump sum payment and how much lifetime pension income you will receive from NPS investments if you begin investing in NPS right now.
You may also see how much money you might save on taxes by investing in NPS using the NPS calculator. This is by Income Tax Act sections 80CCD(1) and 80CCD(1B). Moreover, you pay no capital gains tax on the lump sum you withdraw from retirement, and your retirement corpus is tax-free.
Formula for calculating Pension amounts
NPS, like all pension schemes around the world, uses compounding interest to calculate returns.
The formula that the National Pension Scheme calculator India uses is:
A = P (1 + r/n) ^ nt
In the equation, the amount is A. The other variables are the following.
| P | Principal sum |
| R/r | Rate of interest per annum |
| N/n | Number of times interest compounds |
| T/t | Total tenure |
An example of how pension aggregates is essential here.
If you are 34 years old and your monthly contribution is Rs 3000, you will need to add to the pension account for 26 more years. Assuming that the rate of interest or ROI is expected at 10% every year, the following are the details the National Pension Plan calculator offers.
Total Principal invested= Rs 9.36 Lakh
Sum expected on Maturity = 44.35 Lakh
How Does the NPS Calculator Work?
You can see your overall gains, the predicted future value of your retirement corpus, and the total amount invested using the NPS calculator. It will also display the maximum tax-free lump sum withdrawal you can take out at retirement (60%) and the monthly pension income you will receive for the remainder of your life. After you pass away, 40% of the NPS corpus goes to your nominee.
Illustration on NPS Calculation
Consider an example to elucidate how the NPS calculator computes the monthly pension.
- Mr A, a 21-year-old central government employee, participates in the National Pension Scheme.
- He opts to contribute Rs 3,600 monthly towards the scheme.
- The NPS matures upon reaching 60 years of age for the subscriber.
- Accordingly, Mr A will contribute for the subsequent 39 years until the scheme’s maturity.
- Mr. A anticipates an annual return on investment (ROI) of 8%.
- Additionally, he intends to allocate 40% toward purchasing an annuity with an expected return rate of 6%.
- Upon retirement, the NPS calculator projects the status of Mr. A’s pension account.
- The total investment made by Mr A throughout the period amounts to ₹ 16,41,600.
- The projected corpus generated at retirement stands at ₹ 1,07,06,420.
- Additionally, the calculator provides a summary of Mr. A’s pension account.
- The lump sum value of the corpus at retirement is calculated to be ₹ 64,23,852.
- Furthermore, the estimated monthly pension Mr A can expect to receive amounts to ₹21,413.
FAQs
What is an NPS Calculator?
An NPS Calculator is an online tool designed to help individuals estimate the corpus they can accumulate at retirement and the potential monthly pension they can receive under the National Pension System (NPS). By entering basic details like investment amount, tenure, and expected returns, users can calculate the expected retirement savings and monthly pension.
How does the NPS Calculator work?
- Investment amount (contribution): The monthly or yearly contributions made by the individual.
- Investment tenure: The period over which contributions are made (typically until retirement).
- Rate of return: The expected annual rate of return on the NPS investments.
- Annuity purchase percentage: The portion of the NPS corpus that will be used to buy an annuity, which provides monthly pension.
- Annuity rate: The expected rate of return on the annuity purchased.