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National Pension Scheme

A substantial corpus creation for one’s retirement phase is an essential aspect to take care of during financial distributor. It not only allows individuals to fulfill their expenditure requirements but also allows them to sail through their post-retirement life with the least hassles.

To address this concern of the growing senior citizen demography in the country, the Indian Government thus introduced schemes like the National Pension Scheme or NPS. The scheme allows for systemized savings during one’s working years, thus inculcating a financial discipline among individuals to save for the future.

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An initiative undertaken by the Government of India, the National Pension Scheme seeks to provide retirement benefits to all citizens of India, even from the unorganized sectors. Regulated and administered by the PFRDA or Pension Fund Regulatory and Development Authority under the PFRDA Act 2013, NPS is a defined, voluntary contribution scheme that is market-linked and managed by professional fund managers.

Contributions made by individual subscribers to a National Pensions Scheme under the system accumulate until retirement and corpus growth continues via market-linked returns. Subscribers also have an option to exit this plan before retirement or opt for superannuation. However, this scheme ensures that a part of savings is utilized to provide a subscriber with retirement benefits.

Thus, on retirement, exit, or superannuation, at least 40% of the contribution is utilized for the procurement of lifetime pension via the purchase of an annuity. The remaining funds are paid to the subscriber in a lump sum.

For a 22 year old, if 10,000 per month is contributed till 60 years, (i.e. next 38 years) it shall yield a corpus of 2.97 Cr (Considering 8% return ) and 40% amount is annuitized at the rate of 6%, which shall provide pension for an amount of approximately 60,000 per month.