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Home / Money / Personal Finance /  How much monthly NPS investment would be enough to get 1 lakh pension

NPS calculator: The National Pension System (NPS) is one of the social security initiatives of the central government. It is a voluntary investment plan for public, private and unorganised sector employees. The NPS scheme encourages investor to invest in pension account at regular intervals. An NPS account holder can claim income tax exemption on up to 2 lakh investment in single financial year — up to 1.5 lakh under Section 80C and an additional 50,000 under Section 80 CCD. According to tax and investment experts, this pension scheme not just ensure monthly pension, it helps an investor get a lump sum maturity amount as well.

Speaking on the NPS scheme; SEBI registered tax and investment expert Jitendra Solanki said, "At the time of NPS account opening, the account holder is given two options — active and auto mode. Apart from this, the account holder has the option to choose how much of the maturity amount he or she would like to invest for annuity. This percentage of annuity buy decides the amount of pension one would get." 

Solanki said that one has to select at least 40 per cent of the net NPS maturity amount for annuity buy. However, if a person aims to get higher pension, then the NPS account holder can raise this percentage above as well. He went on to add that on one's annuity purchase, one's monthly pension depends. 

On how much annual annuity return one can expect, Solanki said that one can expect around 6 per cent annual annuity return on one's annuity purchase.

On how one can increase chances of monthly pension post-investment; Amit Gupta, MD at SAG Infotech — a SEBI registered tax and investment solution company said, "To get more monthly pension, one needs to allot higher percentage of annuity in one’s net NPS maturity. As per the NPS rules, it is mandatory to buy annuity from at least 40 per cent of the net NPS maturity amount. But, there is no cap if someone wants to raise this limit. One can buy annuity using 100 per cent of the NET NPS maturity amount."

However, Jitendra Solanki said that one should use 60 per cent of the maturity amount for annuity buy and get the rest 40 per cent as withdrawal amount that the investor can use for emergency financial needs post-retirement.

So, if a person invests in NPS account for 30 years, keeping 60 per cent in equity and 40 per cent in debt, how much NPS interest rate will accrue?

Kartik Jhaveri, director — Wealth Management at Transcend Consultants said, "One can expect 12 per cent return on equity in long-term and 8 per cent return on debt. Since, the equity exposure is 60 per cent, the minimum return on equity exposure in NPS account will be around 7.2 per cent (12 x 0.60) and near 3.2 per cent in debt exposure (8 x 0.40). So, one can expect around 10 to 10.4 per cent NPS interest rate in long-term if the equity and debt exposure is in 60:40 ratio."

Hence, keeping NPS account's equity-debt exposure in 60:40, if a person invests 15,000 per month using 60 per cent of the net NPS maturity amount for annuity buy assuming 6 per cent annual return on annuity, the NPS calculator says that one will get 1,36,75,952 as withdrawal amount and 1,02,5070 monthly pension.

Photo: NPS calculator courtesy NPS Trust
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Photo: NPS calculator courtesy NPS Trust

So, to get 1 lakh monthly pension, the investor will have to invest 15,000 per month, keeping equity debt exposure in 60:40 ration and buy annuity worth 60 per cent of the net NPS maturity amount.

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