How Much Monthly Pension Can I Get from NPS?

The monthly pension you can get from the National Pension System (NPS) depends on several factors, such as your accumulated corpus at the time of retirement, the annuity rates, and the type of annuity you choose. Here’s a detailed breakdown of how the NPS pension works and how you can calculate your monthly pension.

How NPS Pension Works:

1. At Retirement (Age 60):

   • You must purchase an annuity with 40% of your NPS corpus.

   • The remaining 60% of your corpus can be withdrawn as a lump sum (this is tax-free).

2. Annuity Provider:

   • The annuities are provided by Annuity Service Providers (ASPs), which are approved by the Pension Fund Regulatory and Development Authority (PFRDA).

   • These annuity providers offer various plans, and the pension amount depends on the annuity rate that the provider offers.

3. Annuity Rate:

   • The annuity rate is the rate at which the annuity provider will pay you a monthly pension based on your corpus.

   • The rate is generally between 5% and 7% per annum, but it can vary depending on the provider and type of annuity chosen.

Factors Affecting Monthly Pension from NPS:

1. NPS Corpus at Retirement:

   • The more you accumulate in your NPS account, the higher your pension will be. This depends on your contributions, the returns on your investments, and the number of years you have been contributing.

2. The Percentage of Corpus Used for Annuity:

   • 40% of your NPS corpus is used to buy the annuity, which determines your monthly pension.

3. Annuity Type:

   • You can choose from various annuity plans like:

     • Life Annuity: Pays you a fixed monthly pension for life.

     • Life Annuity with Return of Purchase Price: Provides a lump sum return to your nominee if you pass away during the annuity period.

     • Annuity with Certain Period (e.g., 10 or 15 years): Provides pension for a fixed period to your nominee in case of your early death.

4. Your Age:

   • The younger you are at retirement, the higher the annuity amount you can expect. This is because the annuity provider assumes fewer years of payouts for someone who retires younger.

   • Conversely, if you retire later (say at age 70), the monthly pension will likely be higher because the provider will pay the pension for a shorter period.

Example Calculations of Monthly Pension from NPS

Here are a few examples to help you understand how the monthly pension from NPS works.

Example 1:

Scenario:

• NPS Corpus at Retirement: ₹20 lakh

• 40% Used for Annuity: ₹8 lakh (because 40% must be used for annuity)

• Annuity Rate: 6% per annum (for a life annuity)

Calculation:

• Annual Pension = ₹8,00,000 * 6% = ₹48,000 per year

• Monthly Pension = ₹48,000 ÷ 12 = ₹4,000 per month

So, with a corpus of ₹20 lakh, the monthly pension you would get is ₹4,000 after purchasing the annuity.

Example 2:

Scenario:

• NPS Corpus at Retirement: ₹50 lakh

• 40% Used for Annuity: ₹20 lakh

• Annuity Rate: 7% per annum

Calculation:

• Annual Pension = ₹20,00,000 * 7% = ₹1,40,000 per year

• Monthly Pension = ₹1,40,000 ÷ 12 = ₹11,667 per month

In this example, the monthly pension would be ₹11,667 after using ₹20 lakh to purchase the annuity.

Example 3:

Scenario:

• NPS Corpus at Retirement: ₹40 lakh

• 40% Used for Annuity: ₹16 lakh

• Annuity Rate: 5.5% per annum

Calculation:

• Annual Pension = ₹16,00,000 * 5.5% = ₹88,000 per year

• Monthly Pension = ₹88,000 ÷ 12 = ₹7,333 per month

For a corpus of ₹40 lakh, the monthly pension would be ₹7,333.

4. Approximate Monthly Pension Based on Different Corpus Values

Here’s an approximate estimate of the monthly pension you can get based on different corpus sizes at retirement:

Corpus at Retirement	40% for Annuity	Annuity Rate	Monthly Pension (approx.)
₹10,00,000	₹4,00,000	6%	₹2,000 - ₹2,500
₹20,00,000	₹8,00,000	6%	₹4,000 - ₹5,000
₹30,00,000	₹12,00,000	6%	₹6,000 - ₹7,500
₹50,00,000	₹20,00,000	7%	₹11,000 - ₹13,000
₹1,00,00,000	₹40,00,000	7%	₹23,000 - ₹28,000

5. How to Maximize Your NPS Pension:

To increase your monthly pension, here are a few tips:

1. Start Early:

   • The earlier you start contributing to NPS, the larger your corpus will be due to compounding over time.

2. Contribute Regularly and More:

   • Try to contribute more to your NPS account each year. You can also increase your contribution amount as your income grows.

3. Asset Allocation:

   • Choose an appropriate investment mix (equity, corporate bonds, government securities) based on your risk tolerance. The equity portion generally offers higher returns, but also comes with higher risk.

4. Check Annuity Providers:

   • Different annuity providers offer different annuity rates. You can shop around for the best annuity rate when it comes time to buy the annuity.

5. Review Your NPS Strategy:

   • Keep an eye on your NPS account and make adjustments to your contribution or asset allocation strategy if required, especially as you near retirement.

Conclusion

The monthly pension you can receive from NPS depends largely on the corpus you accumulate by the time you retire, the annuity rates offered by the annuity providers, and your choice of annuity plan. The pension can range from a few thousand rupees to several lakhs per month, depending on the size of your accumulated corpus and the annuity rate.

By contributing regularly to NPS and choosing the right investment strategy, you can maximize your retirement corpus and secure a comfortable monthly pension.