Some financial decisions are about the future you want to build

Most financial decisions are made with a goal in mind. You save for a home because you want to build a home. You invest because you want your money to grow. You buy insurance because you want to protect the life you have built. Retirement planning asks a slightly different question: what kind of life do you want your money to support when your salary is no longer your regular source of income?

It could mean travelling more, spending time with family, pursuing interests you never had enough time for, or simply having the financial freedom to make choices without worrying about your next pay cheque.

Building that future takes more than saving whenever there is money left over. It calls for a long-term financial approach that keeps retirement in view even while today's priorities continue to change. This is where the National Pension System (NPS) can play a role. Regulated by PFRDA, NPS is a market-linked retirement investment framework designed to help subscribers build retirement wealth over time.

There can also be a tax dimension to that long-term planning. Under the old tax regime, an individual can claim an additional deduction of up to ₹50,000 under Section 80CCD(1B) for eligible NPS contributions, over and above the ₹1.5 lakh combined limit under Sections 80C, 80CCC and 80CCD(1). Employer contributions under Section 80CCD(2) are covered separately, subject to the applicable conditions and limits.

For someone planning across decades, this can make an NPS contribution work on two levels: it can form part of a retirement investment strategy while also offering an eligible tax deduction today. The ₹50,000 is a deduction from taxable income, not ₹50,000 of tax saved, so the actual tax benefit depends on the individual's circumstances.

But tax efficiency is only one part of the picture. NPS is also designed for long-term retirement investing, with contributions invested according to the subscriber’s chosen Pension Fund and applicable investment approach. Returns are market-linked and are not fixed or guaranteed. Over a long investment horizon, continued contributions can remain invested and have the potential to earn market-linked returns.

Eventually, retirement planning has to move beyond accumulation. Under the current All Citizen Model, eligible subscribers at normal exit can generally use up to 80% of accumulated pension wealth as lump sum, with at least 20% utilised towards annuity, subject to the applicable conditions. For corpus levels up to ₹12 lakh, additional utilisation options apply under the current framework.

An NPS calculator can also help illustrate what the annuity portion could mean for retirement income. For instance, if ₹5 lakh were used to purchase an annuity and a 7% annuity rate were assumed for illustration, the estimated annual annuity income would be ₹35,000, or around ₹2,917 a month. This is only an illustration based on the assumed rate; actual annuity income will depend on the annuity option selected and the rates applicable when the annuity is purchased.

This brings the retirement journey full circle: building wealth during your working years and thinking ahead about how that wealth can support the life you want afterwards.

Within this journey, ICICI Pension Fund Management Limited brings professional fund management to NPS. Its portfolio and asset-allocation strategies allow subscribers to participate in a professionally managed, market-linked retirement investment framework without having to make day-to-day investment decisions themselves.

The future you want will be shaped by many financial decisions made along the way. NPS can be one of them, a way to make retirement planning part of your financial strategy today, while keeping sight of the life you want to support tomorrow.