The National Pension Scheme (NPS) offers citizens a structured avenue to save for retirement. Under NPS rules, you need to contribute for some years to receive a pension after 60 years of age. The monthly pension amount depends on factors like your contributions, returns earned on the corpus, and the annuity plan you opt for.
For example, if you start contributing ₹5,000 every month to NPS at age 30, you will accumulate a sizable corpus by 60 years. Assuming an average return of 9% and no change in contributions, this corpus may grow to around ₹1.1 crore after 30 years. As per regulations, you can withdraw 60% of this lump sum and must use the remaining 40% to purchase an annuity from an insurance company.
This annuity provides you with a regular income for the rest of your life. Additionally, one of the appealing aspects for many investors is the NPS deduction available under Section 80CCD(1) and 80CCD(1B) of the Income Tax Act, which allows for tax benefits on contributions, making it a tax-efficient retirement savings option.
In my opinion, the NPS offers a structured, disciplined approach to saving for old age income. By investing early with reasonable monthly contributions, the power of compounding works excellently here. I encouraged my cousin to start his NPS plan with just ₹3,000 monthly. He has found watching his retirement corpus grow very motivating. It gives him confidence that he will have a peaceful retired life without depending on others. I believe the NPS is ideal for workers in the unorganised sector who lack regular pensions other than their limited savings.