The government offers several options for investing in the National Pension System (NPS). If you want to increase your equity investment by taking risks according to your preference, you can opt for Active Choice. In Active Choice, you can keep up to 75% equity exposure until the age of 50.
In addition, there are Auto Choice options based on your life cycle, called Auto Choice Lifecycle Funds. In this option, equity exposure gradually decreases with age to lower risk. The available options include LC 75, LC 50, and LC 25. If you join this scheme at a young age, you can accumulate a large fund by taking more equity exposure.
Benefits of Joining NPS by Age 35
For non-government subscribers, choosing the LC 75, LC 50, or LC 25 options allows for more exposure to equity investments, which can be as high as 75% until the age of 35. By joining NPS at the age of 35 and planning investments wisely, you can maximize benefits at retirement. Here’s how you can plan for a ₹1 lakh monthly pension by age 60, based on a salary of ₹1 lakh:
Scheme 1: Active Choice
- Age to Join NPS: 35 years
- Subscriber Type: Non-Government
- Investment Allocation:
- Equity: 75%
- Government Bonds: 25%
- Monthly Investment in NPS: ₹15,000
- Total Investment in 25 Years: ₹85,90,878
- Top-up Investment Every Year: 5%
- Estimated Return on Investment: 12.02% per annum
Total Corpus After 25 Years: ₹3.74 crore
- Investment in Annuity Plan: 40%
- Lump Sum Withdrawal: ₹2.24 crore
- Pensionable Wealth: ₹1.5 crore
- Annuity Return: 8%
- Monthly Pension: ₹99,738 (Around ₹1 lakh)
Scheme 2: LC50 – Moderate Life Cycle Fund
- Age to Join NPS: 35 years
- Subscriber Type: Non-Government
- Investment Allocation:
- Equity: 50%
- Corporate Bonds: 30%
- Government Bonds: 20%
- Monthly Investment in NPS: ₹21,500
- Total Investment in 25 Years: ₹1.23 crore
- Top-up Investment Every Year: 5%
- Estimated Return on Investment: 10% annually
Total Corpus After 25 Years: ₹4 crore
- Investment in Annuity Plan: 40%
- Lump Sum Withdrawal: ₹2.43 crore
- Pensionable Wealth: ₹1.62 crore
- Annuity Return: 7.5%
- Monthly Pension: ₹1,01,329 (Around ₹1 lakh)
Withdrawal Rules After Retirement
- You can withdraw up to 60% of your total corpus as a lump sum at retirement.
- The remaining 40% must be invested in an annuity plan.
- If your corpus is ₹5 lakh or less, you can withdraw the entire amount tax-free.
Tax Benefits
- Tier I Contributions: Tax deduction of up to ₹1.5 lakh under Section 80C.
- Additional Deduction: Under Section 80CCD (1B), you can claim an additional ₹50,000 for Tier I contributions.
- Employer’s Contribution: Under Section 80CCD (2), government employees get tax exemption on up to 14% of their salary, and other employees get up to 10%.
Why NPS is Better for Retirement
The National Pension System is an ideal choice for retirement planning. Any Indian citizen between 18 and 70 years can open an NPS account, and contributions must be made until the age of 60 or for a minimum of 20 years.