How the NPS Calculator works
The National Pension System (NPS) is a voluntary, market-linked retirement scheme regulated by the PFRDA. You contribute regularly until retirement, and the money is invested across equity, corporate bonds and government securities to build a retirement corpus. At retirement (typically age 60), a part of the corpus is used to buy an annuity that pays you a monthly pension, and the remainder can be taken as a lump sum.
This calculator assumes a fixed monthly contribution that grows with compounding until your chosen retirement age, then splits the corpus into the annuity and lump-sum portions you select and estimates the resulting monthly pension.
Formula used
Corpus = P × [ ((1 + i)n − 1) / i ] × (1 + i)
Monthly Pension = (Corpus × Annuity%) × Annuity Rate ÷ 12
- P = Monthly contribution
- i = Monthly return = annual return ÷ 12 ÷ 100
- n = Number of months until retirement = (retirement age − current age) × 12
- Annuity % = share of corpus used to buy the pension annuity
- Annuity Rate = annual return offered by the annuity provider
Worked example
Contributing ₹5,000 a month from age 30 to 60 (30 years) at an expected 10% annual return builds a corpus of roughly ₹1.14 crore. Putting the minimum 40% (about ₹45.6 lakh) into an annuity at 6% gives an estimated pension of about ₹22,800 per month, while the remaining 60% (about ₹68 lakh) is available as a lump sum. Because contributions compound over decades, starting early and increasing contributions makes a large difference to the final corpus.
Things to keep in mind
- NPS returns are market-linked, so the actual corpus depends on fund performance and is not guaranteed — the return figure here is only an assumption.
- At retirement you must use at least 40% of the corpus to buy an annuity; up to 60% can be withdrawn as a lump sum, and up to 60% of the corpus is tax-exempt under Section 10(12A). Recent PFRDA changes allow larger lump-sum options for bigger corpuses, but the tax-free limit remains 60% unless the Income Tax Act is amended.
- The pension you receive is taxable as income in the year of receipt, and the actual annuity rate depends on the plan and provider you choose.
- NPS contributions qualify for tax deductions under Sections 80CCD(1), 80CCD(1B) and 80CCD(2), subject to the limits in force.
