NPS Calculator and its Basic Requirements

by Nishant Dhar Consultant

NPS or National Pension Scheme is a government-recommended retirement savings plan that is also tax-efficient under the Income Tax Act section 80CCC and 80CCD. NPS Calculator is a tool that effectively estimates how much money you might receive after your retirement as a pension.

About NPS Calculator

The Central Government introduced the National Pension Scheme with effect from 1 January 2004, only for government employees. It was then created open to all Indian residents as of May 1, 2009.

There are two kinds of accounts available for NPS. No withdrawals are permitted in Tier-I accounts until the account holder reaches the pension age (currently 60 years). Once they reach the age of 60, then only a certain proportion of the premium can be withdrawn in a lump sum and the rest is used to purchase an annuity. Tier-II accounts are entitled at any moment to withdraw the money.

Things required for NPS Calculator

The NPS calculator typically includes the following fields:

Birth date – Used to calculate your present age and determine how many years NPS deposits will be made.

Contribution – This may be annual, twice-year, quarterly or monthly, showing the National Pension Schemes ' regular contribution.

Expected return rate – NPS investments are linked to the market, so they are unable to forecast their returns in advance.

Consequently, the expected return rate (expressed as a percentage value) is used to calculate the future corpus value of your NPS contributions. The greater this field's value, the bigger the corpus will be.

Annuity Purchase – This figure demonstrates the portion of your future NPS corpus used to purchase annuities to determine your monthly pension.

To be used for the purchase of annuities under existing rules, a minimum of 40% of NPS corpus is required. The greater the portion of the prospective NPS corpus used to purchase an annuity, the greater your monthly pension is.

Annuity Rate – This is the expected rate at which annuities are expected to improve after your retirement. Higher annuity levels will lead to higher pension payments. However, the annuity rate is also linked to the market, so it can not be properly predicted in advance.

How does the NPS Calculator work?

Once you enter all of the above details, the result will be the total amount of the corpus that you will achieve when you retire. The interest earned is compounded annually and included in the final amount of the corpus.

You'll discover many online calculators. All these calculators are user-friendly and give near estimates. The variables that affect the quantity of the corpus are all the data you enter for calculation. Other variables affecting the NPS calculators' precision are the tax legislation and the scheme's various fees that NPS calculator does not take into account.