Complete guide
Reviewed July 2026The National Pension System (NPS) is a low-cost, market-linked retirement scheme that turns regular contributions into a lump sum plus a lifelong monthly pension. It's open to almost every Indian, offers some of the lowest fund-management fees anywhere, and carries an extra tax deduction that no other instrument matches - which is why it has become a cornerstone of retirement planning.
This calculator projects your NPS corpus at retirement from your monthly contribution, expected return and years to 60, then estimates the pension it can buy given the mandatory annuity rule. Below you'll find how contributions compound, the crucial 60/40 withdrawal split at maturity, the tax advantages, asset-allocation choices, and the mistakes that shrink the pension.
NPS has one feature that surprises newcomers: you can't take all of it as cash at retirement. Understanding the annuity requirement up front is essential to planning the income it will actually provide.
How NPS builds and pays out
During your working years, contributions are invested in a mix of equity, corporate bonds and government securities and compound at market returns. At 60, the accumulated corpus is split: at least 40% must buy an annuity that pays a lifelong monthly pension, and up to 60% can be withdrawn as a tax-free lump sum.
The formula
Corpus = monthly contribution grown as an annuity at the expected return
FV = C x [((1 + r)^n - 1) / r] x (1 + r)
At 60: lump sum = up to 60% of corpus
annuity corpus = at least 40%
monthly pension = annuity corpus x annuity rate / 12The corpus grows like a SIP - regular contributions compounding at the fund's return. At maturity, the pension depends on two things: how much goes into the annuity (40-100%) and the annuity rate the insurer offers (historically around 6-7% per year).
Worked example
- Contribute Rs 5,000/month from age 30 to 60 (30 years) at an expected 10% return.
- Corpus grows to roughly Rs 1.13 crore (regular contributions compounding for 30 years).
- Withdraw 60% tax-free = about Rs 68 lakh lump sum; 40% = about Rs 45 lakh into an annuity.
- At a 6.5% annuity rate: monthly pension = 45,00,000 x 0.065 / 12 = about Rs 24,375/month for life.
- Annuitising more (say 60%) raises the pension but lowers the lump sum - a personal trade-off.
Tax benefits, allocation and withdrawal
Tax advantages
The extra Rs 50,000 under 80CCD(1B) is NPS's standout benefit - no other instrument offers a deduction beyond the crowded 80C limit. For salaried employees, the employer-contribution route under 80CCD(2) can add substantial tax-free investment on top.
| Section | Benefit |
|---|---|
| 80CCD(1) | Part of the overall 80C Rs 1.5 lakh limit |
| 80CCD(1B) | Extra Rs 50,000 deduction, exclusive to NPS |
| 80CCD(2) | Employer contribution deductible (up to 10-14% of salary), over and above the above |
Asset allocation
- Active Choice: you set the equity/bond/gilt mix, with equity capped (commonly up to 75% when young, tapering with age).
- Auto Choice: an age-based lifecycle fund automatically reduces equity as you approach 60 (aggressive, moderate or conservative variants).
- Higher equity means higher expected return and higher volatility; the auto lifecycle option suits hands-off investors.
Withdrawal rules
- At 60: up to 60% lump sum (tax-free), at least 40% to a compulsory annuity.
- If the total corpus is small (below a threshold), full withdrawal may be allowed without annuity.
- Partial withdrawals (up to 25% of your own contributions) are permitted for specific needs after a few years.
- Premature exit before 60 requires a larger share (commonly 80%) to be annuitised.
Using this calculator
- Enter your monthly contribution, expected return and years to 60.
- Read the projected corpus, then the split into lump sum and annuity.
- Adjust the annuity share to see how the trade-off between lump sum and monthly pension changes.
- Remember the pension depends on the annuity rate at retirement, which you can't lock in today.
Common mistakes
- Assuming you can withdraw the whole corpus at 60 - at least 40% must buy an annuity.
- Overlooking the extra Rs 50,000 deduction under 80CCD(1B).
- Being too conservative when young - low equity means a much smaller corpus over decades.
- Ignoring that annuity income is taxable, unlike the lump sum.
- Forgetting that the annuity rate at retirement (not today) determines the pension - build a larger corpus to buffer this.
Frequently asked questions
Glossary
- NPS
- National Pension System - a market-linked retirement scheme with a pension component.
- Corpus
- The accumulated value of your NPS contributions at retirement.
- Annuity
- A product bought with at least 40% of the corpus that pays a lifelong pension.
- Annuity rate
- The percentage the insurer pays on the annuity corpus, setting your pension.
- 80CCD(1B)
- The extra Rs 50,000 NPS-only tax deduction beyond the 80C limit.
- Active/Auto Choice
- Manual vs age-based automatic asset allocation options in NPS.
- Tier I / Tier II
- The core restricted retirement account vs a flexible voluntary account.
- Lump sum
- The up-to-60% tax-free amount withdrawable at maturity.
Key takeaways
NPS compounds regular contributions into a corpus that, at 60, splits into an up-to-60% tax-free lump sum and a minimum-40% compulsory annuity paying a lifelong (taxable) pension. Its standout edge is the extra Rs 50,000 deduction under 80CCD(1B), plus low fees and equity-driven growth. Start early with meaningful equity, remember the annuity requirement and its tax, and build a larger corpus to buffer against whatever annuity rate applies at retirement.
Enter your monthly contribution, return and years to 60 above for your projected corpus and pension; then adjust the annuity share to balance lump sum against monthly income.