NPS Active Choice – Life Cycle Fund : National Pension System (NPS) is a popular option for retirement planning today. National Pension System is a government investment scheme started keeping retirement in mind. This scheme has been designed for pension after retirement. It is being regulated by PFRDA or Pension Fund Regulatory and Development Authority under the PFRDA Act 2013. Under NPS, investors’ savings are deposited in the pension fund.
The Central Government has given different options in NPS considering different categories of investors. For example, if you can take some market risk then active choice is an option for you. After this, considering the decreasing risk appetite, there are options of LC50 75, LC50 50 and LC50 25. While in the active choice, the equity exposure in the initial phase is higher than that of corporate bonds and government bonds, in other options the proportion of options other than equity increases.
If you join at an early age, you will get more benefits
There are more benefits of joining NPS at a young age. By choosing LC 75, LC 50 and LC 25 options at the age of 35 years or above, more of the subscriber’s money is invested in equity options. Exposure to equity can be up to 75 percent. Active Choice in NPS is an option in which if you join till the age of 50, you get 75 percent exposure to equity. Here we have done the calculation keeping the age of 35 as the basis. If you are getting a salary of Rs 1 lakh at the age of 35, then how can you arrange for a pension of Rs 1 lakh when you retire at the age of 60?
NPS: Active Choice – Life Cycle Fund
Investment in Equity: 75%
Investment in Government Bonds: 25%
Age to join NPS: 35 years
Subscriber Sector: Non Government
Investment in NPS every month: Rs 15,000
Total investment in 25 years: Rs 85,90,878
Top up in investment every year: 5%
Estimated return on investment: 12.02% per annum
Total corpus: Rs 3,74,01,686 (Rs 3.74 crore)
Investment in annuity plan: 40 percent
Lump sum withdrawal: Rs 2,24,41,012 (2.24 crore)
Pensionable Wealth: Rs 1,49,60,674 (1.50 crore)
Annuity return: 8%
Monthly Pension: Rs 99,738 (Rs 1 lakh)
More contribution to meet the target in other options
However, if you choose other options instead, you will have to increase the monthly contribution for pension by Rs 1 lakh. For example, if you look at the calculation if you join the LC50 option at the age of 35, you will get 50 percent exposure to equity, 30 percent exposure to corporate bonds and 20 percent exposure to government bonds.
Investment in NPS every month: Rs 21,500
Total investment in 25 years: Rs 1,23,13,591
Top up in investment every year: 5%
Estimated return on investment: 10% per annum
Total corpus: Rs 4,05,31,683 (about Rs 4 crore)
Investment in annuity plan: 40 percent
Lump sum withdrawal: Rs 2,43,19,010 (2.43 crore)
Pensionable Wealth: Rs 1,62,12,673 (1.62 crore)
Annuity return: 7.5%
Monthly Pension: Rs 1,01,329 (Rs 1 lakh)
Withdrawal rules after retirement
Currently, one can withdraw up to 60 per cent of the total corpus as a lump sum, with the remaining 40 per cent going into an annuity plan. Under the new NPS guidelines, if the total corpus is Rs 5 lakh or less, subscribers can withdraw the entire amount without purchasing an annuity plan. These withdrawals are also tax-free.
NPS is better for retirement
National Pension System is a better option for people planning for retirement. NPS is a central government scheme. It is necessary to invest in this scheme for at least 20 years. Under the National Pension Scheme, any Indian citizen between 18 years to 70 years can open an account, whether he works in the Central Government, State Government or a private company. NRI is also eligible for this. After opening the account, one has to contribute till the age of 60 years or till maturity. If we look at the return history of NPS, till now it has given 9% to 12% annual returns.
