Pension Planning Made Easy With Atal Pension Yojana Scheme!
The personal finance journey of an individual consists of various stages. The last stage of this journey is retirement. It is a crucial period to manage due to decreasing physical health, lack of stable income like salary, increase in expenses, dependency, etc. Moreover, in modern times, having financial freedom has become one of the necessities, which can be a difficult task for senior citizens.
In India, the population of senior citizens, that is, people above 60 years old, is expected to touch the mark of 319 million by 20501.
Solving the issue of financial security for this large population can be a difficult task. Due to this, the government puts active efforts in the same direction. One such effort is the Atal Pension Yojana Scheme, popularly known as APY. It is a form of pension fund created out of gradual contributions by the investor over the years. Understanding this government pension scheme can help individuals plan a fixed and regular income for their retirement with minimal investment.
What Is Atal Pension Yojana Scheme?
Introduced by the Pension Funds Regulatory and Development Authority of India (PFRDA) in 2015, this government scheme has been one of the most feasible investments at a low cost. As of June 2024, there were 6.66 crore subscribers of this scheme2. The contribution in APY starts as low as INR 42. It further increases with the decrease in years up to retirement (age of 60 years).
The scheme aims to provide a monthly pension to the investors after their retirement. It can be termed as one of the lowest-cost pension schemes in India. Moreover, there are no specific barriers, such as employment for the scheme.
How Does Atal Pension Yojana Work?
To simplify the process, this government pension scheme is processed directly through the linked bank account. Some key parts of the process of APY are as follows:
- Prospective investors must have a savings account in any bank like public sector, private, payment, co-operative, small finance, etc.
- Investors from ages 18 to 40 will have to contribute different amounts based on their age at the start of this scheme and contribution frequency. This amount can be paid monthly, quarterly or half-yearly.
- The difference in contribution is due to the time value of money. It indicates that the future value of money will be lower than its present value. The earlier the subscription and the more frequent the contribution, the lower the contribution amount.
Let us understand it with these hypothetical examples.
# Mr K subscribes to the Atal Pension Yojana at the age of 25 years. He is willing to earn a monthly pension of INR 3000. Moreover, he can contribute to the scheme every half-yearly. He is willing to contribute INR 1,334 every half yearly.
Total contribution = 1,334*2*(60-25) = INR 93,380.
Assuming this subscriber is alive up to age 75.
He will get around INR 5.4 lakhs (3000*12*15) through this scheme.
# Ms N is aged 34 years and is willing to invest in the APY. She can make a monthly contribution of a maximum of INR 500. Investors can manage their contribution based on their pension requirements and payment frequency. Therefore, she can suitably get an INR 3000 monthly pension in retirement with a monthly contribution of INR 495.
Total contribution = 495*12*(60-34) = INR 1,54,440
Assuming this subscriber is alive up to age 80.
She will get nearly INR 7.2 lakhs (3000*12*20) through this scheme.
The given examples indicate how a reduction in the number of years up to retirement increases the required contribution.
(Note: Here, the effect of compounding or discounting is not accounted for in the examples for simplification.)
Investors can calculate their contribution and returns based on their age from the following chart:
Late Payment Penalties
Contribution is a crucial aspect of this scheme. Investors failing to contribute on time may break the calculation cycle. Usually, there is an auto-debit facility for this scheme because it links with bank savings accounts. However, if a contribution is missed due to lack of funds till the end of an individual’s contribution period, the bank will charge a default penalty in the subsequent contribution. This penalty will be as follows (Source: NPS Trust3):
Contribution | Penalty |
INR 100 | INR 1 |
INR 101- INR 500 | INR 2 |
INR 501- INR 1000 | INR 5 |
INR 1001 onwards | INR 10 |
For example, Ms M is paying INR 577 monthly contribution due to investing in the scheme at the age of 30 years. If she misses the contribution in November, she will have to pay the total contribution as follows:
Monthly Contribution = INR 577
Penalty =INR 5
Therefore, December contribution = 577+5 = INR 582
The INR 5 penalty will be charged for every delayed contribution.
Features Of Atal Pension Yojana
This government scheme aims to help reduce dependence on retirement savings and generate a fixed pension. Some of the key features of this scheme are:
- Contribution
It ranges from INR 42 to INR 8581 and varies based on the period of investment and frequency. The total contribution will also vary based on it, and an early start can lower this contribution.
- Fixed income
Post-retirement, the contributions will end, and investors will earn a fixed pension monthly till their death. The benefits range from INR 1000 to INR 5000 per month.
- Administration
This scheme is created and administered by the PFRDA through the National Pension Scheme (NPS) structure. NPS is a successful scheme with a subscriber base of around 1.81 crore as of October 20244.
- Early Exit
Investors can withdraw their investment before attaining 60 years of age. The person will receive their contribution and net accrued amount after deducting the maintenance charges.
- Charges
Apart from contribution, certain annual charges for account maintenance, opening and downgrade/upgrade of the account will be debited from the linked savings account. Also, late payments or defaults will attract a penalty.
- Death Of Subscriber
If an investor dies before attaining 60 years of age, his/her spouse will be liable to decide the continuation of the scheme. In case of continuation, the scheme will be transferred to the account of the spouse, and contributions will continue. If one decides to discontinue the scheme, the spouse or nominee will receive the accumulated corpus.
- Default By Subscriber
If a contribution payment fails, the investor would have to pay a penalty of INR 1 for every contribution of INR 100. This amount will be charged with the contribution in the next payment period. In case of continuous defaults, the account maintenance will be charged from the accumulated corpus till the account becomes nil. After this, the account will be closed.
Benefits Of Atal Pension Yojana
1. Financial Security In Retirement: Provides financial assistance during retirement, reducing dependence on personal retirement savings.
2. Fixed Monthly Pension: Offers a predictable income stream with low investment requirements, balancing present needs and future planning.
3. Sovereign Backing: Eliminates default risk; the government covers any shortfall if returns are less than contributions, and credits the balance to the subscriber if contributions exceed returns.
4. Extended Benefits: Ensures continuity of benefits to the spouse and nominee in case of the subscriber’s demise.
How To Apply For Atal Pension Yojana?
The subscription to this scheme is easier due to its wide network of different types of banks. Prospective subscribers can follow these steps to apply for the scheme:
Offline Method For APY Application
Step 1: Visit the nearest bank branch or post office. However, banks would be more feasible as they require a savings account to link the scheme.
Step 2: Fill out the APY form and submit the details like Aadhar card or mobile number. If an investor has already processed the ‘Know Your Customer (KYC)’ process, one may not require more documents.
Step 3: Select the frequency and amount of contribution based on the retirement pension objective.
Step 4: Ensure a sufficient balance in the savings account for auto-debit of contribution.
Online Method For APY Application
Step 1: Link the Aadhar card with your mobile number for digital APY account opening.
Step 2: Sign up with the required details to the e-NPS portal (https://npstrust.org.in/open-apy-account).
Step 3: It may require a savings account and mobile number, along with an e-mail ID.
Step 4: Post the KYC procedure, investors will receive a confirmation e-mail for their enrollment.
Investors may select the feasible option between online and offline registration, but they should consider certain conditions for enrollment.
Eligibility Criteria: Atal Pension Yojana
- Age eligible for making contributions: 18 to 40 years.
- The subscriber should mandatorily have a savings account for a deduction of the contribution, and one should ensure sufficient balance.
- The KYC procedure should be completed with the bank before starting the scheme.
If an investor has enrolled in the scheme from June 2015 to December 2015, the government contributes collaboratively for the first five years, that is, from 2015-16 to 2019-20. However, for the enrollments post this period, the facility is unavailable.
Atal Pension Yojana Withdrawal Process
There can be 3 cases for the withdrawal, and their procedures are as follows:
Sr. No. | Withdrawal condition | Procedure |
1. | After 60 years | 100% of the pension wealth can be availed or monthly pension. |
2. | Before 60 years | Contributions up to the period will be returned along with net accrued income after deducting the charges. |
3. | Death of subscriber before attaining 60 years of age | A spouse can continue the scheme in his/her name and get the pension in retirement, or they can stop the scheme and get the accumulated pension wealth. |
4. | Death of subscriber after attaining 60 years of age | A spouse can get the regular pension amount or stop the scheme to withdraw the total accumulated amount. |
Progress Of Atal Pension Yojana
The scheme is one of the many revolutionary endeavours of the government. Its features have catalysed the objective of inclusive and sustainable financial development for Indians.
This government pension scheme aims to reach a mass audience and is putting efforts in a similar direction. It has released the scheme details in nearly 23 languages to ease access. The enrollments in this scheme are on an uptrend due to these benefits.
Based on the data as of FY 2024, among the total enrollments, there are 46.58% women investors. Moreover, people between the ages of 21 to 25 have a significant share in these figures, which shows evolving attitudes towards investments and financial security in the country5.
Conclusion
This scheme by the Pension Funds Regulatory and Development Authority of India (PFRDA) has been a successful initiative. Its features, such as low contribution, fixed pension returns, early exit, withdrawal, etc., can provide support for retirement.
Atal Pension Yojana (APY) can be a significant diversification for a wide range of investors. The contribution can be reduced with more years and higher frequencies. Investors can plan this investment by referring to the contribution chart.
There are also some modern ways of diversifying your portfolio, and fixed income opportunities like corporate bonds can be a good avenue for this start. Log in to Grip Invest and explore more.
Frequently Asked Questions On Atal Pension Yojana
1. How many years do we have to pay for APY?
APY is a retirement scheme. Therefore, investors have to contribute to this scheme up to 60 years of age. After this, the investor would receive a monthly payment based on their plan.
2. Can I withdraw money from APY?
Yes, investors can withdraw their investment before 60 years from APY. They would receive the contribution made by them till that particular period and accrued income. However, account maintenance charges would be deducted from this amount.
3. What happens if an APY investor dies before 60 years?
If a subscriber dies before 60 years, his/her spouse can continue this scheme by regular contribution and reap the benefits after her/his 60 years of age. Also, the spouse can stop this scheme and withdraw the accrued amount after deducting the account charges.
References
- Niti Ayog, Accessed from: https://www.niti.gov.in/sites/default/files/2024-02/Senior%20Care%20Reforms%20in%20India%20FINAL%20FOR%20WEBSITE_compressed.pdf
- Ministry of Finance, Accessed from: https://www.financialservices.gov.in/beta/sites/default/files/2024-07/Significant-Developments-June-2024.pdf#page=2
- NPS Trust, Accessed from: https://npstrust.org.in/charges-under-apy
- NPS Trust, Accessed from: https://npstrust.org.in/aum-and-subcriber-base
- PFRDA, Accessed from: https://www.pfrda.org.in/writereaddata/links/press%20release98965ede-f5ff-4fdc-b1c0-5acb3949f6be.pdf
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