How your NPS retirement corpus and monthly pension can jump by 40% after this rule change; get details
NPS Monthy Pension, NPS Retirement Corpus: Finance Minister Nirmala Sitharaman made an important announcement in Budget 2024 for National Pension System (NPS) accountholders. According to which, it is proposed to increase the amount of deduction allowed to an employer in respect of their contribution to a pension scheme from the 10 per cent 14 per cent of the basic salary of the employee. Apart from that, the finance minister said that a non-government employee in the new tax regime will be allowed deduction of an amount 'not exceeding 14 per cent of the employee’s salary in place of 10 per cent.'
Speaking from an employee's perspective following the new tax regime, if their basic salary is Rs 50,000 and the employer was contributing Rs 5,000 every month to their NPS account, under the new proposed rules, it will now contribute Rs 7,000 a month. On a monthly basis, it appears to be a small change, but for someone who is starting their NPS journey at 25 years of age, in the long run, this small change can boost their retirement corpus by Rs 1,25,61,950, and monthly pension by Rs 29,311. Know how
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NPS contribution conditions
Before we start our NPS calculation, let's lay out some rules. The starting age for NPS monthly contribution will be 25 years, and the employee will contribute till 60 years of age. The monthly contribution will be Rs 7,000, which in our calculation box is shown against the calculation of Rs 5,000 monthly contribution.
NPS contribution conditions
We will assume a 10 per cent annualised return on the NPS contribution. We will also assume that the NPS subscriber will withdraw 60 per cent of their retirement corpus at 60 years of age and purchase annuity for the monthly pension from the rest of the 40 per cent amount. On annuity investment, they will get a 7 per cent return.
When you contribute Rs 5,000/month to NPS
When you contribute Rs 5,000 monthly to your NPS account for 35 years, the total contribution will be Rs 54,19,218. At 10 per cent annual growth, the corpus at the age of 60 years will be Rs 3,14,04,875.
When you contribute Rs 5,000/month to NPS
If you withdraw 60 per cent amount at retirement, the remaining amount for the annuity will be Rs 1,25,61,950. When you invest it and get a 7 per cent return, you will get an annual amount of Rs 8,79,337 or the monthly pension of Rs 73,278.
When you contribute Rs 7,000/month to NPS
When you contribute Rs 7,000 monthly to your NPS account till the age of 60, your total contribution will be Rs 75,86,906. At 10 per cent annual growth, the corpus after 35 years will be Rs 4,39,66,825.
When you contribute Rs 7,000/month to NPS
If you withdraw a 60 per cent amount from it, the remaining amount for the annuity will be Rs 1,75,86,730. When you invest it and get a 7 per cent return, the annual amount that you will get from it will be Rs 12,31,071, and the monthly pension will be Rs 1,02,589.
How much extra NPS retirement corpus you will get
On contributing Rs 7,000 instead of Rs 5,000 a month, your extra contributions in 35 years will be Rs 21,67,688. But it will boost your retirement corpus by 1,25,61,950.
How much extra NPS retirement corpus you will get
At retirement, you will get an extra monthly pension of Rs 29,311. So, a small increase of Rs 2,000 a month will do wonders for you in the long run.
| (Assuming person starts at 25 years) | Earlier | Now | Difference | Increase % |
| Monthly contribution required | 5,000 | 7,000 | 40% | |
| Total years of contribution | 35 | 35 | ||
| Total contribution | 54,19,218 | 75,86,906 | ₹ 21,67,688 | 40% |
| Returns assumed | 10.00% | 10.00% | ||
| Corpus at the age of 60 years | ₹ 3,14,04,875 | ₹ 4,39,66,825 | ₹ 1,25,61,950 | 40% |
| Min 40% of corpus to be invested in an Annuity plan | ₹ 1,25,61,950 | ₹ 1,75,86,730 | 40% | |
| Annuity rates (assumed) @7% p.a.) | ₹ 8,79,337 | ₹ 12,31,071 | ₹ 3,51,735 | 40% |
| Monthly pension | ₹ 73,278 | ₹ 1,02,589 | ₹ 29,311 | 40% |
Chart Courtesy: Max Life Insurance