How it works
Your contributions grow at the return you expect until retirement. The final corpus is split: part is paid out as a lump sum and part must buy an annuity, which pays you a pension for life.
The share that must go into an annuity depends on the type of subscriber and the size of the corpus, and the rules have been changing. Enter the share that applies to you. The default of 40% is the long-standing minimum.
The monthly pension is the annuity amount multiplied by the annuity rate, divided by 12. The annuity rate is set by the provider you choose and varies.
Raise your contribution every year to see the effect of increasing it along with your income.
The formula
Corpus = sum of each month’s contribution, grown at the monthly return until retirement
Monthly pension = corpus × annuity share × annuity rate ÷ 12. The lump sum is the corpus × (1 − annuity share).
A worked example
Contributing ₹10,000 a month for 30 years at an expected 10% a year gives a corpus of about ₹2.28 crore. With 40% going into an annuity at 6%, the lump sum is about ₹1.37 crore and the pension is about ₹45,600 a month.
Frequently asked questions
How much must I put into an annuity?
It depends on the type of subscriber and the corpus. For non-government subscribers the minimum annuity share has been reduced recently, with a lump sum of up to 80% allowed in some cases. Check the current rule with PFRDA or your pension fund manager and enter the share that applies to you.
Is the lump sum taxed?
Part of it is tax free under current rules, and the treatment of the rest depends on the rule that applies. Check the current law before you plan around it.
What return should I use?
It depends on your choice of equity, corporate bond and government securities. Returns are not guaranteed, so try a few.
Will the pension keep up with prices?
No. A fixed annuity buys less each year as prices rise. Use the inflation calculator to see what your pension may be worth in today’s money.