National Pension Scheme: If a person starts contributing to the National Pension Scheme as soon as he starts a job, then by the age of 60, he will have a lot of money. This is because NPS provides the facility to invest in many types of assets, which gives the benefit of compounding in the long run.
National Pension Scheme:This month, the National Pension System (NPS) has completed 15 years since its inception. NPS was first started in 2004 for government employees. Its doors were opened to the rest in 2009. NPS allows subscribers to allocate their investments across multiple asset classes. How has been the performance of this scheme, what are its special features, how can one take advantage of it? Let us try to know the answers to these questions.
Two primary accounts in NPS
There are two primary accounts in NPS. First Tier-1 and second Tier-2. Tier 1 is a pension account, while Tier 2 is a voluntary savings account. PFRDA is the regulator of this scheme. Some time ago, Kurian Jose, CEO of Tata Pension Management, had told about the benefits of NPS in terms of long-term retirement planning.
Benefits of compounding in the long run
He had said that in NPS, subscribers get the benefit of compounding in the long run. Subscribers’ contributions grow over time and give great returns in the long run. Jose explained this through an example. He said that suppose a 30 year old person invests Rs 5000 every month in NPS. Under balanced allocation, 50 percent of his money goes into shares and 50 percent into government and corporate bonds.
Calculation for monthly pension of Rs 1 lakh
If an annual increase of 6 percent in this contribution is assumed and 10 percent return on investment is assumed, then by the time the investor turns 60 years of age, a fund of about Rs 1.85 crore is prepared. If 100 percent annuity is selected, the person will get a monthly pension of Rs 1,05,292 throughout his life. If the subscriber dies, the pension will continue to his/her wife/husband. The nominee will receive the principal amount.
Calculation for monthly pension of Rs 50,000
If a person wants a pension of Rs 50,000 every month after retirement, then his calculation can be adjusted accordingly. If a person invests Rs 2,500 every month in NPS when he turns 30, his total fund will increase to Rs 92.5 lakh. With this he will get a pension of around Rs 50,000 every month.
You can contribute every month as per your capacity.
A person can calculate his corpus in NPS according to his age and monthly contribution. For example, if a person is 40 years old and starts investing in NPS with Rs 5000 every month and increases his annual contribution by 20% every year, then his total fund will increase to around Rs 2 crore. At 6.5 percent annuity rate, he will get a pension of about Rs 1,13,730 every month.
