In my last blog, we have seen how you can invest with NPS, benefits of NPS and where your money going to invest in NPS. Today we will check out how this small and regular monthly investment in NPS can create big corpus and guaranteed PENSION plan for TENSION FREE LIFE.
NPS at Retirement
At the age of 60 yrs you have 3 options with NPS:-
1) You can continue your investment till the age of 70.
2) You can defer your withdrawal till the age of 70 with no new investment.
3) Exit from the NPS.
First and second options indicate more investment with more benefit of compounding for another 10 years, and wait of 10 years for the pension with no new investment for getting the advantage of compounding interest respectively.
Let’s discuss the 3rd option in detail as it has all the limelight i.e. exit from the NPS
At the time of exit, you will get choices of lump sum and pension (annuity).
Withdrawal limit of LUMP SUM – 0% to 60% of the total corpus generated that is TAX-FREE.
So PENSION will get 40% to 100% of total corpus generated with NO TAX EXEMPTION.
Now NPS going to give this pension corpus TO APS (Annuity Service Providers) i.e. looking after your pension plans like LIC, SBI LIFE, HDFC LIFE & ICICI PRU. They will make your pension plans according to your requirements with a 6% interest rate currently.
Generally, all APS provides the following four plans,
1) Plan 1 – Pension for life.
2) Plan 2 – Pension for life with Return of Purchase price on death to your NOMINEE.
3) Plan 3 – Pension for life with a 100% pension to your spouse after your death.
4) Plan 4 – Pension for Life with a 100% pension to your spouse with the return of Purchase price on the death of the last survivor to Nominee.
Let’s check it with an example:-
If your age is 30 years and you invest 12,000 Rs per month in NPS, so at the age of 60 years your total investment will be 43, 20,000 Rs, and with compounding effect at an interest rate of 12% your total corpus becomes 4.23 Cr Rs.
Now with this corpus, if we select 50% lump sum and 50% pension plan so tax-free 2.11 Cr Rs goes to lump sum and remaining 2.11 Cr Rs goes to the pension plan.
With this pension corpus if we can choose any of the above 4 mentioned plans so monthly pension comes to as follow;
1) Plan 1 – Pension for life, you will get 1, 54,081 Rs per month.
2) Plan 2 – Pension for life with Return of Purchase price on death to your NOMINEE, you will get
1, 13,840 Rs per month.
3) Plan 3 – Pension for life with 100% pension to your spouse after your death, you will get 1, 32,725 Rs per month.
4) Plan 4 – Pension for Life with 100% pension to your spouse with the return of Purchase price on the death of the last survivor to Nominee, you will get 1,13,134 Rs per month.
You can get the same or even higher corpus then above mentioned examples in spite of lesser investment amount if you start investing in NPS at the age of 20.
Remember it’s all about time for compounding advantage.
You can count your NPS according to your age by using this link
Therefore, National Pension scheme is a moderate risk investment plan with tax-free maturity corpus advantage, with a tax rebate convenience and with a monthly pension benefit makes it a great retirement product.