About NPS Calculator
Introduced by the Central Government, the National Pension System (NPS) came into effect from 1 January 2004 for government employees. However, from 1 May 2009, NPS was made available for all citizens of India. NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). NSDL has been appointed as the Central Recordkeeping Agency (CRA) by PFRDA. Customer service, administration, and keeping of all records is done by CRA. The Permanent Retirement Account Number (PRAN) is issued to every member of NPS by CRA.
Tier-I and Tier-II are the two accounts available under NPS. No withdrawals are allowed in a Tier-I account until the individual reaches the age of 60 years. After the individual reaches 60 years of age, they can withdraw a certain percentage of the premium in lump sum while the rest is used to buy annuity. In case of a Tier-II account, the subscriber will be able to withdraw the money any time.
The amount of corpus that has been saved by an individual at the time of maturity and the approximate monthly pension that the individual will receive can be calculated using an NPS calculator. The amount that is saved by an individual will depend on his/her contribution and returns that are generated. Anyone who is eligible to invest in NPS will be able to use the NPS calculator. Individuals between the ages of 18 years and 60 years are eligible to invest in NPS. KYC details of the individual must be up to date in order to invest in NPS.
How NPS Calculator Works
The way the NPS works, is that the subscriber be it a private employee or a public servant needs to make monthly contributions from the time of subscription till the subscriber attains the age of 60. Based on how much the age of the subscriber was at the time of subscription and the monthly contributions made, the National Pension Scheme calculator makes close estimates of how much pension that subscriber can stand to receive. Since the contributions made towards this scheme is invested in equity, corporate debt and government securities it is quite difficult to exactly estimate the rate of interest earned by the scheme. For the year 2012-13, the scheme had interest rates varying from 12% to 14%
Subscribers of the national pension scheme are however at an advantage as they alone can decide the amount of contributions they need to make towards the scheme. The subscribers can choose the amount based on the financial commitments they have at present or based on the corpus they look forward to during retirement. The sole responsibility of coming up with an amount for contribution rests with the subscriber. Generally, the more money invested, the larger will be the corpus. Subscribers however tend to make contributions that are at least 10% of the basic income and dearness allowance. This is to avail tax benefits of NPS.
Calculators are found widely across the internet and certain banks even offer calculators of their own. These calculators offer close estimates and are very easy to use. For example if a subscriber aged 35 goes in for the NPS, the scheme reaches maturity when the subscriber attains the age of 60 so that leaves him/her with 25 years of contributing time. Let us assume the contribution made is Rs 2000 per month and the expected interest or rate of return is taken as an average of 8% then the calculator will show vital stats such as the total invested principle which in the following case will be Rs 6,00,000 and the interest earned on this which is compounded monthly and comes up to Rs 12,98,372. The total pension wealth generated in this case is Rs 18, 98,372 with a total tax saving of Rs 1, 80,000. If the subscriber makes a withdrawal of a lump sum of 20% and invests the remaining 80% of the pension wealth into the annuity plan with the expected interest rate of 8%, the subscriber stands to earn monthly pension of Rs 10,124 and the lump sum withdrawn is Rs 3,79, 674
Other reasons affecting the accuracy of such NPS calculators are the fact that tax laws may change and have an effect on the return on investments and the calculator also does not take into account the miscellaneous charges of the scheme.
1. How is Tier I different from Tier II?
In case of Tier I, until the subscriber reaches the age of 60 years no withdrawal can be made, but for Tier II, withdrawal from his/her balance can be made anytime the subscriber wishes.
2. For Tier I subscribers, what is the minimum contribution?
The minimum contribution at one time is Rs.500, and Rs.6,000 must be deposited per year.
3. For Tier II subscribers what is the minimum contribution?
The minimum contribution at one time is Rs.250, and Rs.2,000 must be deposited per year.
4. Is there any maximum contribution that must be made in a year?
No, as of now there is no upper limit.
5. Is there any transaction cost that is borne by the subscriber?
Ad valorem of 0.25% of the total amount that is contributed. A maximum up to Rs.25,000 and a minimum of Rs.20 plus service tax.
6. What happens to the accumulated corpus if the subscriber dies before the age of 60?
The nominee or legal heir of the subscriber will get 100% of the accumulated corpus should the subscriber die before the age of 60, and there would not be any purchase of Monthly/Annuity Pension.
7. Is there any limit to the number of nominations that can be made in an account?
A total of 3 nominations can be made in an account.
8. When the subscriber reaches the age of 60, can the entire amount be withdrawn?
A maximum of 60% of the amount can be withdrawn when the subscriber reaches the age of 60. However, until the age of 70, the subscriber can remain invested. The remaining 40% will have to be annuitized at the end of the contribution year. There is also an option to annuitize 100% of the corpus.
9. Is there any minimum number of contributions that should be made in a year?
Yes, at least 1 contribution must be made in a year.
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