With the last decade of the 20th century, being one of financial reforms a lot changed. Especially, after the opening of the domestic economy in 1991; globalisation emerged and became a rich part of Indian economics until the 2000s started. This is how the National Pension Scheme (NPS) was born in 2004. The primary objective was, to allow the common man a return on the money earned after retirement to meet important expenditures.
This included child education, marriage and in general, a financially stable post-work life. Before dwelling on and understanding the NPS calculations, following are some more details about the National pension scheme. This is a scheme wherein an employee contributes an amount consistently till retirement, to receive it as an instalment pension in old age when one has no fixed source of income.
How to open an NPS Account
The PFRDA (Pension Fund Regulatory and Development Authority of India) makes all decisions concerning the NPS and offer both offline as well as online modes to create an account:
Offline Mode: If you wish to sign up manually (offline mode), you will need to locate a nearby Point of Presence (PoP0. This could even be a nearby bank, where you collect a subscriber form and submit it along with KYC documents. In case you are already KYC compliant with the bank, you can directly submit the form. Once you make the initial investment, the PoP will send you a PRAN (Permanent Retirement Account Number). This number and password in your packed welcome kit at the cost of a one-time fees of Rs 125 would help you use your account.
Online Mode: In the highly digitalised world that we live in, today, you can create this account in a mere half an hour. The only underlying condition is that the account must be linked with your Aadhar. PAN Card and mobile number. You can generate a One time Password (OTP) and thus create your PRAN.
Types of NPS Account
The two primary account types under the NPS are tier I and tier II. The former is the default account while the latter is a voluntary addition. The table below explains the two account types in detail.
| Particulars | NPS Tier-I Account | NPS Tier-II Account |
| Status | Default | Voluntary |
| Withdrawals | Not permitted | Permitted |
| Tax exemption | Up to Rs 2 lakh p.a.(Under 80C and 80CCD) | 1.5 lakh for government employees Other employees-None |
| Minimum NPS contribution | Rs 500 or Rs 500 or Rs 1,000 p.a. | Rs 250 |
| Maximum NPS contribution | No limit | No limit |
The Tier-I account is mandatory for everyone who opts for the NPS scheme. The Central Government employees have to contribute 10% of their basic salary. For everyone else, the NPS is a voluntary investment option.
How is NPS Calculated?
The National pension scheme’s finances can also be calculated using an online calculator; available on the Bajaj Finance website too. This calculator requires you to input the following fields:
- Present Age
- Retirement Age
- Contribution towards NPS per month
- Expected rate of return on NPS Investment
- Annuity Period
- % Of pension wealth invested as annuity
- Expected rate of return on annuities
Once all the inputs have been entered, the NPS calculator will simultaneously begin computing the lump sum and pension amount you can expect at the time of maturity.
The calculator generates a summary of your pension account at the time of retirement with the total amount you would have contributed during the period and the corpus generated on maturity.
Also, the NPS calculator computes your expected monthly pension that you would receive based on the returns you expect on the Annuity.
Here is an example to help you understand how the NPS calculator computes your monthly pension.
Ms Shweta is a 33-year-old central government employee. She subscribes for the National Pension Scheme and decides to contribute Rs 10,000 every month towards the scheme. NPS matures when the subscriber turns 50 years of age. Meaning, Shweta will able to contribute for the next 27 years towards the scheme and expects a return on investment (ROI) of 8% per annum. In the same line, she would like to purchase an annuity for 40% and expect a 7% rate of return on the annuity.
The status of Shweta’s pension account at retirement as generated by the NPS calculator will be as follows:
- Total investment: Rs 32,40,000
- Total corpus generated: Rs 1,14, 89, 898
- Also, a summary of his pension account would be generated by the calculator.
- Lump sum value: Rs 45,95,959
- Expected monthly pension: Rs 26,810
Therefore, that is how the National Pension Scheme is calculated in India. Bajaj Finance offers you an online calculator for the same.
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