The newly introduced Unified Pension Scheme (UPS) for central government employees is making headlines, with around 23 lakh central government employees expected to benefit from it. If adopted by state governments, this number could rise to 1 crore. However, an earlier initiative, the Atal Pension Yojana (APY), launched in 2015, might impact even more lives. Designed to provide financial security to those in the unorganised sector, the APY allows individuals to invest a modest amount monthly and receive a guaranteed fixed income upon retirement.
As of March 2024, the Pension Fund Regulatory and Development Authority (PFRDA) reports 5.6 crore subscribers under the APY, far surpassing the 35 lakh subscribers of the National Pension System (NPS) ‘all citizens model’.
Advantages of Atal Pension Yojana (APY):
- Government Guarantee: APY provides a government-backed pension, ensuring reliability.
- Affordable Contributions: The scheme requires minimal monthly contributions, making it accessible.
- Fixed Pension Amount: Subscribers can receive a lifetime pension ranging from Rs 1,000 to Rs 5,000, depending on their contributions and choice.
- Spouse Benefit: The subscriber’s spouse will receive the same pension amount for life after the subscriber’s death.
- Nominee Benefit: The entire corpus, including interest, is returned to the nominee upon the demise of both the subscriber and their spouse.
Limitations of APY:
- No Partial Withdrawals: Unlike the NPS, APY requires that the entire corpus be converted into annuities, with no option for partial withdrawals.
Comparison with Other Annuity Options:
APY’s annuity model is particularly beneficial for low-income individuals, such as daily wage workers. For instance, an individual contributing Rs 210 per month from age 18 can expect a monthly pension of Rs 5,000 after 42 years. In comparison, annuity options from life insurers may offer lower pensions for the same corpus.
Contribution Management:
APY contributions are managed by three retirement fund managers—LIC Pension Fund, SBI Pension Fund, and UTI Pension Fund. Each manager handles a conservative hybrid portfolio, investing up to 15% in equities and the rest in debt and money market instruments. As of July 2024, these managers collectively manage around Rs 39,000 crore in APY funds. The government guarantees the pension amount, even if the fund’s returns fall short.
Tax Benefits:
Income-tax payers were barred from opening new APY accounts from October 2022, but existing subscribers still benefit from tax deductions. Contributions to APY are eligible for deductions under Sections 80CCD(1) and 80CCD(1B) of the Income-tax Act, although the pension received is taxable as per the subscriber’s income tax slab.
How to Apply:
APY accounts can be opened online via the eNPS portal or offline at nationalised banks, major private banks, and post offices. The process includes options for auto-debit and tracking via the “APY and NPS Lite” mobile app.
In conclusion, APY offers a reliable and affordable pension solution for the unorganised sector, with benefits that could be appealing, especially during economic downturns when guaranteed-return products might offer lower returns. Enrolling both spouses in APY could secure up to Rs 10,000 in combined monthly pensions.
