With an average pension pot of ₹5 lakh at 60, Indians are opting not to retire

There is also a wide gap between the private sector and government employees in terms of the size of the accumulated pension fund. Average Central Government Employee Pension Pot Stands 13 lakh and that on a State Government employee 5.4 lakhs. On the other hand, the average corporate sector subscriber has a pension pot. 18 lakhs. Unorganized sector employees who come under the ‘all citizens’ model of NPS, though retire with the smallest pension pot 2.89 lakhs. The largest segment of subscribers in the NPS at the age of 60 is in the unorganized sector.

In NPS, retirees need to use a minimum of 40% of the accumulated corpus to buy an annuity (pension). They can also use the entire corpus to buy a larger annuity. Due to rock bottom annuity rates, the accumulated pension pot may not be able to receive a larger pension.

NSDL which is a Central Recordkeeping Agency (CRA) in the NPS system has a pension calculator on its website which uses the actual annuity rates published by various insurance companies in the NPS system. For a 60 year old male customer, a 5 lakh corpus will get the maximum annuity rate of 6.31% if he wishes to get the purchase price back to his heirs. This translates to maximum monthly pension 2,616. For a subscriber opting for a lifetime annuity (without getting the purchase price back), the maximum monthly pension on offer is 4,353 per month. PFRDA is exploring annuity options like Systematic Withdrawal Plan (SWP).

Current retirees are not finding these pension pots enough for their retirement and hence they are opting to continue contributing and build up their pension savings. In response to a question in Lok Sabha, the government revealed that 83 per cent of NPS subscribers prefer to contribute even after the age of 60. Considering this trend, sector regulator PFRDA has increased the maximum retirement age in NPS to 75.

Individuals up to the age of 70 years can enter and contribute to the NPS and then defer their pension pot maturity till the age of 75 years. The central government has increased its contribution to the NPS pension pots of employees to 14% of their salary. 10% earlier. NPS subscribers also get tax benefits for their contributions up to the total 2 lakhs every year under section 80C and 80CCD(1B). “Tax benefit under section 80CCD(1B) is specifically applicable to NPS 50,000 should be raised so that people can save enough for retirement,” said Sumit Shukla, CEO, HDFC Pension Fund.