NPS Calculator

The National Pension Scheme or NPS calculator is a tool that enables an individual to compute the amount of money he or she will potentially receive as a pension. The calculators show an estimate of the pension amount rather than the exact figure.

Overview

Before discussing the features of an NPS calculator, let us learn about the scheme and its highlights. NPS is the Indian version of the famous American Retirement Scheme, the 401(K). This pension scheme is set up in such a way as to allow flexibility, and at the same time, minimize the liabilities faced by the government. The structure of NPS permits partial withdrawals and provides the flexibility to the members for deciding where to invest the pension funds. NPS is open to all individuals who are in between the age of 18-60. It matures when the member reaches the retirement age, which is 60 years mostly. The scheme has two types of account structures, a tier-I account, which is rigid and does not allow the premature withdrawal; and tier-II account, which is a prospective payment system that allows for premature and partial withdrawals in cases of an exceptional nature and is almost always connected to healthcare.

The scheme was launched in 2004 for just central government employees; but in 2009, it was opened to all Indian citizens. National Pension Scheme was modified into New Pension Scheme, which also follows the same abbreviation, but it became a contribution pension scheme. It includes three types of accounts. Tier-I follows the same fundamentals of no withdrawals, whereas the Tier-II account is a voluntary account and can only be accessed if a Tier-I account is opened; such accounts work like a savings accounts. It also has a third kind of account known as the Swavalamban account that was launched for the benefit of people who are on or below the poverty line.

The New Pension Scheme considers the Dearness Allowance (DA) as a component of the contribution that an employee has to make, which was not included in the old National Pension Scheme. In the New Pension Scheme, the funds are managed by six fund managers who have been approved by the PFRDA - an authorized regulatory body of the NPS.

How Does NPS Calculator Work?

In the NPS scheme, whether the employee is from a private sector or is a public servant, he/she is required to make monthly contributions from the time of opening the account till the employee attains the age of 60. Based on the age of the subscriber during subscription in the scheme and the monthly contributions made, the NPS calculator determines the close estimates of the amount that the subscriber can stand to receive. Since some portion of the contributions made towards this scheme is invested in equity, corporate debt and government securities as well, it is quite difficult to estimate the actual rate of interest earned by the plan.

The subscribers of the National Pension Scheme, however, have the upper hand, as they alone can decide the amount of contribution they are required to make towards the pension scheme. The subscribers can select the amount during subscribing to the account, based on the financial commitments they have or the corpus they look forward to getting during the retirement. On the other hand, in the New Pension Scheme, the contribution amount is decided by the fund managers. Generally, more the money invested, the larger is the corpus. However, the subscribers tend to make contributions at 10% of the basic income and DA to avail the tax benefits of NPS.

NPS Calculators are found widely across the internet, and certain banks even provide calculators of their own. These calculators provide the approximate values and are convenient to use. For example, if a subscriber aged 35 years opts for the NPS, the scheme will reach maturity stage when the subscriber attains the age of 60, leaving him/her with 25 years of contributing time.

Another factor that may affect the accuracy of NPS calculators is the fact that tax laws keep fluctuating, affecting the return on investment of the scheme. Also, the calculator doesn't consider the miscellaneous charges of the scheme.

FAQs

1. How is Tier I account different from Tier II?

In Tier I account, until the subscriber attains 60, no withdrawal is allowed. However, for Tier II, withdrawal from the account balance can be made at any time.

2. What is the minimum contribution for Tier 1 account subscribers?

The minimum contribution at a time is Rs.500, and Rs.6,000 must be deposited on an annual basis.

3. What is the minimum contribution for Tier II subscribers?

The minimum contribution to be made at one time is Rs.250, and Rs.2,000 must be deposited per year.

4. Is there any maximum amount of contribution that should be made in a year?

No, there is no upper limit for contributing.