NPS (National Pension System) gives you a retirement corpus + a mandatory monthly pension. At age 60, you can take up to 60% as a tax-free lump sum; the remaining 40% (minimum) must be used to buy an annuity that pays a monthly pension for life. This calculator shows you both: what the corpus will be and what that pension cheque looks like.
How NPS returns work
NPS isn’t a fixed-return product — it’s market-linked. You choose an asset allocation (Equity/Corporate Bonds/Government Securities) and the fund grows based on market performance. Auto Choice (lifecycle fund) shifts allocation from equity-heavy at young age to debt-heavy near retirement.
Historical NPS Tier 1 returns (as of April 2026):
| Fund type | 5-year CAGR | 10-year CAGR |
|---|---|---|
| Equity (E) — Scheme E | 13–15% | 12–14% |
| Corporate Bonds (C) | 7–8% | 7–8% |
| Government Securities (G) | 6–7% | 7–8% |
| Auto Choice (LC75) | 10–12% | 10–11% |
For projection purposes, 9–10% p.a. is a conservative assumption for a balanced allocation. Aggressive equity-heavy allocation could see 12–13% over a 25–30 year horizon.
NPS tax benefits — one of the best in India
| Deduction | Limit | Regime |
|---|---|---|
| 80CCD(1): Employee contribution | Up to ₹1.5L (within 80C overall limit) | Old regime only |
| 80CCD(1B): Additional NPS contribution | ₹50,000 extra over 80C | Old regime only |
| 80CCD(2): Employer contribution | Up to 10% of salary (14% for central govt) | Both regimes |
The 80CCD(1B) deduction of ₹50,000 is exclusive to NPS — no other instrument gives this extra room beyond the ₹1.5L 80C ceiling. For someone in the 30% bracket, ₹50,000 NPS = ₹15,000 tax saved per year, plus the corpus growth.
Annuity options at retirement
When you use the mandatory 40% to buy an annuity, you choose from these IRDA-approved options:
| Annuity option | Pension | On death |
|---|---|---|
| Life annuity | Pension for life | Stops |
| Life + return of purchase price | Pension for life | Corpus returned to nominee |
| Joint life (spouse) | Pension continues to spouse | Stops after spouse passes |
| Life annuity with 5/10/15 year guarantee | Pension for min 5/10/15 years | Paid to nominee if within guarantee period |
The “return of purchase price” option gives ~30–40% lower monthly pension compared to pure life annuity, but the corpus goes back to your family. Most retirees with dependents prefer the joint life option.
Worked example: ₹5,000/month from age 30
| Monthly contribution | ₹5,000 |
| Age at start | 30 |
| Retirement age | 60 |
| Expected return | 10% p.a. |
| Years of investment | 30 |
| Corpus at 60 | ~₹1.13 crore |
| Lump sum (60%) | ~₹67.8 lakh |
| Annuity corpus (40%) | ~₹45.2 lakh |
| Monthly pension (at 6% annuity rate) | ~₹22,600 |
Total contributions over 30 years: ₹18 lakh. The corpus is ~6.3× what you put in.
Tier 1 vs Tier 2
| Tier 1 | Tier 2 | |
|---|---|---|
| Purpose | Retirement (locked) | Voluntary savings (flexible) |
| Minimum contribution | ₹500/month or ₹6,000/year | ₹250 |
| Withdrawals before 60 | Restricted (max 25% for specific purposes) | Anytime |
| Tax benefit | 80CCD(1), (1B), (2) | None (except central govt employees) |
| Tax on withdrawal | 60% lump sum exempt; annuity taxed as income | Taxed as income |
Tier 2 has no tax benefit for most subscribers — treat it as a liquid savings account, not a retirement vehicle.
Frequently asked questions
Can I withdraw from NPS before 60?
Partial withdrawal (up to 25% of own contributions) is allowed after 3 years for: higher education, marriage of children, purchase/construction of first house, critical illness, disability, or starting a business. Full withdrawal (including annuity purchase waiver) is allowed only on permanent disability or terminal illness.
What happens if I die before 60?
The entire corpus goes to the nominee — no compulsory annuity purchase. The nominee can withdraw the full amount or continue the account if they wish.
Which NPS fund manager should I choose?
As of April 2026, top-performing Tier 1 equity fund managers over 10 years: SBI Pension Funds, HDFC Pension Management, ICICI Prudential Pension Funds. Differences in long-term returns are small (0.2–0.5% p.a.) but compounded over 30 years matter. PFRDA allows one fund manager change per year at no cost.
Is NPS better than PPF for retirement?
For most salaried employees: NPS for the extra ₹50,000 80CCD(1B) deduction + higher equity returns over 25+ years. PPF gives guaranteed 7.1% tax-free with full liquidity at maturity. A combination works best — max out PPF first (₹1.5L), then add NPS for the additional ₹50K deduction and equity upside.
Sources
- PFRDA (Pension Fund Regulatory and Development Authority) annual report FY 2024-25
- NPS Trust: fund performance data (NPS returns tracker, April 2026)
- CBDT: Section 80CCD(1B) notification and Finance Act 2025
- IRDA: Approved annuity products for NPS subscribers