88% of India’s total labour force of 47.29 crore belongs to the
unorganised sector, in which the workers do not have any formal
provision of getting a regular pension payment on retirement.
Moreover,
due to increasing labour wages and better medical facilities, these
people also face a risk of increasing longevity. So, this work force
would require some kind of assured income guarantee to sustain itself in
the coming years.
Launching Atal Pension Yojana (APY) from June 1, 2015
To encourage workers in the unorganised sector to voluntarily save
for their retirement, the government of India will be launching a new
scheme, called Atal Pension Yojana (APY), from 1st June, 2015. Finance
Minister Arun Jaitley announced this scheme in his budget speech on
February 28th.
This scheme will replace the UPA government’s Swavalamban Yojana –
NPS Lite and will be administered by the Pension Fund Regulatory and
Development Authority (PFRDA). The benefits of this scheme in terms of
fixed pension will be guaranteed by the government and the government
will also make contribution to these accounts on behalf of its
subscribers.
Under this scheme, a subscriber would receive a minimum fixed pension
of Rs. 1,000 per month and in multiples of Rs. 1,000 per month
thereafter, up to a maximum of Rs. 5,000 per month, depending on the
subscriber’s contribution, which itself would vary on the age of joining
this scheme.
The minimum age of joining this scheme is 18 years and maximum age is
40 years. Pension payment will start at the age of 60 years. Therefore,
minimum period of contribution by the subscriber under APY would be 20
years or more.
The Central Government would also co-contribute 50% of the
subscriber’s contribution or Rs. 1000 per annum, whichever is lower, to
each eligible subscriber account, for a period of 5 years, i.e., from
2015-16 to 2019-20, who join the NPS before 31st December, 2015 and who
are not income tax payers. The existing subscribers of Swavalamban
Scheme would be automatically migrated to APY, unless they opt out.
Who is eligible for Atal Pension Yojana?
Any Citizen of India, aged between 18 years and 40 years, who has
his/her savings bank account opened and also possesses a mobile number,
would be eligible to subscribe to this scheme.
Government Funding – Indian Government would provide (i) fixed
pension guarantee for the subscribers; (ii) would co-contribute 50% of
the subscriber contribution or Rs. 1,000 per annum, whichever is lower,
to eligible subscribers; and (iii) would also reimburse the promotional
and development activities including incentive to the contribution
collection agencies to encourage people to join the APY.
Who is eligible for Government Co-Contribution in Atal Pension Yojana?
Subscribers of this scheme, who are not covered under any other
statutory social security scheme and are not income tax payers, would be
eligible for the government’s co-contribution of up to Rs. 1,000 per
annum.
Social Security Schemes which are not eligible for Government Co-Contribution
- Employees’ Provident Fund (EPF) & Miscellaneous Provision Act, 1952
- The Coal Mines Provident Fund and Miscellaneous Provision Act, 1948
- Assam Tea PlantationProvident Fund and Miscellaneous Provision, 1955
- Seamens’ Provident Fund Act, 1966
- Jammu Kashmir Employees’ Provident Fund & Miscellaneous Provision Act, 1961
- Any other statutory social security scheme
Minimum/Maximum Pension Payable – This scheme will pay a
minimum pension of Rs. 1,000 per month and a maximum pension of Rs.
5,000 per month, depending on the subscriber’s own contribution per
month.
Minimum/Maximum Period of Contribution – As the minimum age of
joining APY is 18 years and maximum age is 40 years, minimum period of
contribution by the subscriber under this scheme would be 20 years and
maximum period of contribution would be 42 years.
Atal Pension Yojana – Contribution Period, Contribution
Levels, Fixed Monthly Pension and Return of Corpus to the Nominees of
Subscribers
Internal Rate of Return (IRR) – Thanks to the government
funding of Rs. 1,000 per annum per subscriber account for 5 years, your
account would generate an IRR of approximately 0.66% per month or 8% per
annum. This pension amount per month is fixed and the government has
made it clear that if the actual returns on the pension contributions
are higher than the assumed returns, such excess return will be credited
to the subscribers’ accounts, resulting in enhanced pension payment to
the subscribers.
Minimum Contribution – A subscriber aged 18 years will have to
contribute a minimum of Rs. 42 per month in order to get Rs. 1,000
pension per month starting 60 years of age. For a 40 years old
subscriber, his/her minimum contribution would be Rs. 291 per month. The
contribution levels would vary and would be low if subscriber joins
early and increase if he joins late.
Maximum Contribution – A subscriber aged 40 years will have to
contribute Rs. 1,454 per month in order to get Rs. 5,000 pension per
month starting 60 years of age. For a 18 years old subscriber, his/her
contribution for Rs. 5,000 monthly pension would be Rs. 210 per month.
Can I increase or decrease my monthly contribution for higher or lower pension amount?
The subscribers can opt to decrease or increase pension amount during
the course of accumulation phase, as per the available monthly pension
amounts. However, the switching option shall be provided only once in a
year during the month of April.
What will happen if sufficient amount is not maintained in the savings bank account for contribution on the due date?
Non-maintenance of required balance in the savings bank account for
contribution on the specified date will be considered as default. Banks
are required to collect additional amount for delayed payments, such
amount will vary from minimum Re. 1 to Rs. 10 per month as shown below:
(i) Re. 1 per month for contribution upto Rs. 100 per month
(ii) Rs. 2 per month for contribution upto Rs. 101 to 500 per month
(iii) Rs. 5 per month for contribution between Rs. 501 to 1,000 per month
(iv) Rs. 10 per month for contribution beyond Rs. 1,001 per month.
Discontinuation of payments of contribution amount shall lead to following:
After 6 months account will be frozen.
After 12 months account will be deactivated.
After 24 months account will be closed.
Subscriber should ensure that the Bank account to be funded enough
for auto debit of contribution amount. The fixed amount of
interest/penalty will remain as part of the pension corpus of the
subscriber.
Post-Retirement Rate of Return – Considering a retirement
corpus of Rs. 1.7 lakh and monthly pension of Rs. 1,000, this scheme is
going to generate a return of 0.59% per month or 7.1% per annum for its
subscribers. I think this return is also on a lower side.
Nomination Facility – This scheme will also provide the
nomination facility to its subscribers. In case of the subscriber’s
death after attaining 60 years of age, the whole corpus generating the
pension income to the subscriber would be returned back to the nominee
of the subscriber. In case of untimely death of the subscriber before 60
years of age, the balance would be returned back to the nominee of the
subscriber.
Where to open APY Accounts – You need to approach
points of presence (PoPs) and aggregators under existing Swavalamban Scheme. These agencies would enrol you through architecture of National Pension System (NPS).
I think a subscriber should opt for a minimum monthly contribution of
around Rs. 167 or so, which would make it approximately Rs. 2,000
annual contribution. 50% of Rs. 2,000 i.e. Rs. 1,000 would be
contributed by the government as well. So, the subscriber will get the
maximum benefit of government funding.
As mentioned above, the scheme would start from June 1, 2015. So,
interested people will have to wait till then to open an account. If you
have any other query regarding this scheme, please share it here.
