How to get benefit from ATAL PENSION YOJANA (APY)?

 

Considering the pressing need of people with low income, working in unorganized sector Govt of India has launched Atal Pension Yojana (APY) in 2015.

 

National Pension Scheme is a Defined Contribution Pension scheme in India. Putting simply, the accumulated amount is invested in an Annuity Plan and the pension is disbursed by the Annuity Providers from the income of the investment of the Pension Fund of the subscribers. The amount of pension depends upon the condition of the capital market. This is a major psychological barrier to attract the subscribers when joining the NPS is a matter of choice, unlike the employees in Govt and organized sectors. The Govt of India has guaranteed the amount of pension which is quite unique in pension fund industry in the world, particularly when the interest rates are plummeting down.

Important features of APY:

Comparison between NPS and APY (that facilitates the understanding of APY):

 

SN	Norms	APY	NPS
1	Age Eligibility	The age eligibility for individuals to subscribe for APY scheme is 18 years to 40 Years	The age eligibility for individuals to subscribe for the NPS account is 18 years to 70 years
2	Who can Join?	Only Resident Indians can subscribe	Open for all citizens of India whether resident or non-resident
3	Need for opening an SB a/c with a bank/ Post Office	The subscriber has to open an SB a/c with a bank or a Post Office to join APY. The a/c can also be opened with Business Correspondent  (Bank Mitra)	The subscriber has to open an SB a/c with a bank only if he wants to open Tier II a/c along with Tier I a/c. Tier II a/c can be opened along with Tier I a/c or later.
3	Pension Slab	Subscribers have options to choose a fixed pension amt of pension (viz. Rs 1000, Rs 2000, Rs 3000, Rs 4000 and Rs 5000) to be received per month for example:	No such fixed pension. Pension amt depends upon the growth in Pension Fund corpus (which depends upon the returns in capital market) and type of Annuity Plan.
4	Account Type	Under the APY, as a single scheme, it does not offer any differentiation by offering different account types.	The NPS offers two types of accounts to its subscribers namely Tier 1 account and Tier 2 account. Tier 2 a/c is an "Add On" facility helping the subscribers to manage their liquidity.
5	Mini and Maxi Contribution	The minimum contribution under the APY scheme depends on the age of the subscriber, frequency of contribution and targeted amt of pension.	The subscriber needs to contribute Rs 1000 as initial contribution for opening of NPS account. Thereafter the minimum contribution is Rs 500 in Tier 1 a/c and Rs 250 in Tier 2 a/c. There is no limit on the maximum contribution.
6	Guara- nteed pension amt	The APY gives guaranteed pension amt post retirement	The NPS does not guarantee the amt of pension as it is linked to the capital markets.
7	Tax Benefit	Tax deduction up to Rs. 50,000 under Section 80CCD (1) over and above the Rs. 1.5 lakh allowed under Section 80C of the Income Tax Act, 1961 can be claimed.	Subscriptions in Tier I a/c is eligible for tax deduction as following: [1] Under 80CCD(1), which comes under Section 80C, self-contribution upto Rs 50000 subject to 10% of salary in case of salaried employees and 20% of their gross income in case of self- employed persons. [2] Further Tax deduction up to Rs. 50,000 under Section 80CCD (1B) which over and above the Rs. 1.5 lakh allowed under Section 80C.  Thus, NPS subscribers could avail Tax Deduction benefit through NPS and other eligible investments upto Rs 1.5 lakh under section 80C.
8	Contri.  by the employer	Not applicable	The employer can also Contribution in employee’s Tier I a/c. Employer's contribution towards NPS Tier-I is eligible for tax deduction under Section 80CCD (2) of the Income Tax Act (14% of salary for central government employees and 10% for others). This rebate is over and above the limit prescribed under Section 80C. 80CCD (1), which comes under Section 80C, covers self-contribution. Salaried employees can claim a maximum deduction of 10% of their salary, while self-employed individuals can claim up to 20% of their gross income. 80CCD (2), which is also a part of Section 80C, covers the employer’s contribution towards NPS. This benefit cannot be claimed by self-employed individuals. The maximum amount that an individual is eligible for deduction is either the employer’s NPS contribution or 10% of basic salary plus Dearness Allowance. Under Section 80CCD (1B), individuals can claim an additional amount of Rs.50,000 for any other self-contributions as NPS tax benefit.
9	Pre-mature withd-rawal	Pre-mature withdrawal under the scheme is permitted only under limited circumstances.	Pre-mature withdrawal is permitted under the tier 1 account subject to certain conditions. Under Tier 2 a/c, withdrawal is permitted without any condition.
10	Return of Corpus Amount to the Nominee	On the death of the pensioner, fixed amount of corpus amount is returned to the nominee depending upon the slab amount of the pension.	Amt depends upon the growth of the corpus depending upon the capital market during the accumulation phase of the corpus.

 

Important Features of APY:

·         Amount t of Pension and Corpus Amount (at the end of the term period) is guaranteed by the Central Govt.

·         Subscription is automatically debited (Auto Debit) by the bank/Post Office (at the opted periodicity – Monthly, Quarterly, Half-yearly) if the sufficient balance is maintained by the subscriber at the scheduled time of debiting the subscription. In case of delayed payment, penalty is charged.

·         APY a/c can be opened with the Bank Mitra (Business Correspondent) who is easily accessible as they are: in large numbers, from local community and provide services at convenient time of the subscribers.

·         The subscribers receives the PRAN (Permanent Retirement Account Number) Card

·         The subscriber receives the Statement of Account every year giving the details of the subscriptions credited in his account.

·         The target amount of pension can be revised at any time during the year (Effective from July 2020).

·         In the sad event of death of the spouse, surviving spouse can opt to continue the contribution. The corpus will be transferred to the surviving spouse name and a new PRAN will be issued.

·         Subscriber can view the PRAN Account online and can also print the PRAN online.

·         Making Nomination is compulsory while joining the APY.

·         The fees and charges payable to intermediaries involved in maintaining the APY account are fixed by PFRDA. These charges are low in comparison with other providers of similar services in Pension Fund industry. In the case of continuous default of payment of subscription, the fees and charges will be levied till the corpus fund becomes zero.

·         The Swavalamban / NPS Lite Subscribers aged 18 to 40 years are eligible to migrate to APY.

·         The Toll Free Helpline number for APY Scheme is 1800-110-069.

·         APY is managed by PFRDA (Pension Fund Regulatory and Development Authority), a statutory body of the Govt of India.

·         Regarding stoppage of Auto-debit for APY subscription till 30th June, 2020, PFRDA has issued guidelines (PFRDA’s circular No: PFRDA/2020/8/P&D-APY/1. dated 11.04.2020).

 

Indicative table of Entry Age, Targeted Pension Amount and Monthly Subscription: 

 

 

As the familial attachment for looking after the aged people is decreasing day by day, providing regular income security for them is becoming a matter of prime importance in the social welfare policy of the Governments in developing countries. However, providing such support in the form of Aged Pension on required scale and pattern, as being followed in developed countries, is beyond the financial resources of developing countries. Considering the ever increasing cost of pension, the Govt of India has discontinued such liberal earlier pension (generally known as Defined Benefit Pension) even to its employees since 2004 who are now covered under National Pension Scheme (a Defined Contributory Pension). Now the employers are required to contribute in pension fund (earlier this contribution was being credited in the Provident Fund a/c of the employee). As such, pension without contribution is not available even to Govt employees (except Armed Forces) in India. Message is clear: Save and invest for pension for your old age. The people working in organized sector (which are only 7.5% of the work force in India) are compulsorily covered under NPS.

Once a person starts earning, he is thinking about the income security of his family members in the unfortunate event of his death (and takes life insurance policy as soon as he can afford) but he does not think his own income security in the event of his inability to earn due to old age (and as a result neglects to plan for creating a Pension Fund). Among these two sad events, the probability of occurrence of latter is more and certain than the former, though nothing could be said certain in one’s life. With the improvements in health facilities and free medical facilities for the poor for life threatening diseases, the longevity of life is increasing but in absence of regular income, old age becomes painful. Self-reliance through pension brings more self-respect and dignified place in the family as an elderly person rather than depending upon family member’s income. To a prudent man, this much must suffice to make him bother about old age pension and get him into planning for a Pension Fund. 

Have you joined APY?

If not, it is time to think and join if you are eligible. The Govt of India, even though the interest rates are sliding down day by day and return from capital market is always uncertain, has guaranteed the pension amount as well as the amount of corpus. How long will you be sitting on the fence? Join the APY, the sooner, the better.

- G N Patel (The blogger can be contacted at gnpatel@gujaratinfotech.com)

Disclaimer: “The information given in the blog is only for general awareness and must not be construed as a professional advice. Readers are advised to consult the official documents / resources  in any subject matter of the blog before acting on the information discussed in the blog. The readers who are acting otherwise are doing so at their own risk."

                  
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