For years, retirement planning under the National Pension System (NPS) adhered to a fixed rule — at least 40% of the retirement corpus had to be used to purchase an annuity, while leaving only 60% of the corpus to be withdrawn in a lump sum. That rule quietly shaped how much people invested and how much pension they finally received under the all-citizen model.
But that rule has now changed — and with it, the entire maths of retirement income.
Under the revised NPS withdrawal rules, subscribers now get much more flexibility at retirement. Up to 80% of the total corpus can be withdrawn as a lump sum, while only 20% is mandatory for buying an annuity.
This looks like a big relief on paper. But in reality, it also shifts more responsibility to the investor, especially for those aiming for a higher monthly pension from NPS.
It’s important to note that the new rule does not force subscribers to limit annuity investment to 20%. NPS investors are still free to allocate more than 20% of their corpus towards an annuity, depending on their retirement needs and comfort. In fact, the maximum limit for investing in an NPS annuity remains 100%.
What has really changed is the flexibility from the government’s side. If a subscriber maintains discipline and chooses to withdraw a smaller portion of the corpus as a lump sum, and instead channels more money into an annuity, they can still secure a higher pension after retirement.
However, since the rules now allow annuity investment to be reduced to as low as 20%, it becomes important to understand how this choice impacts retirement income.
In this story, we calculate how much a person needs to invest every month to receive a pension of Rs 1 lakh per month under NPS. We look at three scenarios:
-80% of the corpus invested in an annuity
-40% of the corpus invested in an annuity
-20% of the corpus invested in an annuity
Each scenario highlights how flexibility comes with trade-offs, and why retirement planning under NPS now demands more informed decision-making.
Assumptions used for the NPS calculator
To keep things realistic and easy to understand, let’s assume the following:
Starting age: 35 years
Retirement age: 60 years
Investment period: 25 years
Expected return during accumulation: 10% per year
Annuity return after retirement: 6%
Target pension: Rs 1 lakh per month (Rs 12 lakh per year)
Now let’s see how the required monthly investment changes under different annuity choices.
Scenario 1: Using 80% corpus investment in annuity
To receive a monthly pension of Rs 1 lakh from NPS after 25 years of investment, you need to start investing per month Rs 19,000 now.
Total investment over 25 years: Rs 57 lakh
Total corpus (with 10% annual return): Rs 2.54 crore
Annuity value: Rs 2.03 crore (80% of the corpus)
Annuity rate of return: 6% per annum
Monthly pension: Rs 1 lakh per month
Scenario 2: Using 40% corpus investment in annuity
To receive a monthly pension of Rs 1 lakh from NPS after 25 years of investment, you need to start investing per month Rs 38,000 now.
Total investment over 25 years: Rs 1.14 crore
Total corpus (with 10% annual return): Rs 5.08 crore
Annuity value: Rs 2.03 crore (40% of the corpus)
Annuity rate of return: 6% per annum
Monthly pension: Rs 1 lakh per month
Scenario 3: Using 20% corpus investment in annuity
To receive a monthly pension of Rs 1 lakh from NPS after 25 years of investment, you need to start investing per month Rs 76,000 now.
Total investment over 25 years: Rs 2.28 crore
Total corpus (with 10% annual return): Rs 9.45 crore
Annuity value: Rs 1.9 crore (20% of the corpus)
Annuity rate of return: 6% per annum
Monthly pension: Rs 1 lakh per month
How NPS pension works under the revised rules
NPS works in two clear stages—one during your working years and the other at retirement.
Accumulation phase (working years)
During your earning years, you invest a fixed amount every month in NPS. This money is invested in market-linked assets such as equity, corporate bonds and government securities.
Over time, equity growth and the power of compounding help your investments grow and build a retirement corpus.
Withdrawal phase (at age 60)
When you retire, you get flexibility in how you use this corpus.
You can withdraw up to 80% of the total amount as a lump sum. At least 20% of the corpus must be used to buy an annuity.
The annuity then pays you a fixed monthly pension for life.
Under NPS, the annuity is the only source of guaranteed income after retirement. The rest of the money depends on how carefully you manage and use the lump sum amount.
Summing up…
The revised NPS withdrawal rule offers choice — not comfort by default. A Rs 1 lakh monthly pension is still achievable, but it now depends far more on planning, discipline and smart use of equity than on rules alone.
