Are Atal Pension Yojana and National Pension System Similar Schemes?
In the realm of retirement savings, two prominent government-backed schemes in India stand out: the Atal Pension Yojana (APY) and the National Pension System (NPS). While both aim to secure the financial future of individuals, they differ significantly in their features, investments, pension amounts, withdrawal rules, and eligibility.
The Atal Pension Yojana, designed primarily for unorganised sector workers not covered by other social saving schemes, offers a simple, straightforward approach to retirement planning. With only one account available, subscribers make predefined, fixed monthly or quarterly contributions, starting from as little as Rs. 42 per month. In return, they receive a guaranteed fixed monthly pension ranging from Rs. 1,000 to Rs. 5,000 after the age of 60.
On the other hand, the National Pension System (NPS) caters to a wider demographic, including both organised and unorganised workers. This scheme offers two types of accounts: Tier 1 (mandatory, pension-focused) and Tier 2 (voluntary, flexible withdrawals). Contributions can be made flexibly, with no maximum limit, and typically start from Rs. 500 per month. The pension amount received is based on the corpus accumulated and investment returns, offering the potential for higher pensions but with market-linked risks.
In terms of underlying investments, the APY pools contributions and invests them in a manner that guarantees a fixed minimum pension. In contrast, the NPS allows subscribers to choose the proportion of each type of investment under the Active Choice NPS Option or opt for one of the Life Cycle Funds LC75, LC50, or LC25 for automated investments.
Withdrawal rules also differ between the two schemes. Premature withdrawal in the APY is allowed only in case of death or medical emergency. Upon maturity, subscribers can withdraw 60% of the corpus, with the remaining 40% used to buy an annuity plan for regular pension income. In the NPS, Tier 1 account withdrawals are mostly prohibited before age 60, except under specific conditions. At 60, up to 60% of the corpus can be withdrawn tax-free, with the remaining amount required to be annuitized.
Both schemes offer tax benefits. The APY receives government contributions, and contributors also benefit from tax savings under Section 80CCD(1B) with an additional Rs. 50,000 exemption. The NPS offers tax benefits on contributions under Section 80CCD, up to Rs. 1.5 lakh, with an additional Rs. 50,000 under 80CCD(1B). At maturity, 60% of the corpus withdrawal is tax-free.
In summary, the Atal Pension Yojana targets unorganised workers up to the age of 40, offering simplicity, pension certainty, and a fixed, government-backed pension. The National Pension System caters to a wider age group, with more flexible contributions, market-linked returns, and the potential for higher pensions, but with different withdrawal rules and investment risks. [1][3][4][5]
[1] Government of India. (n.d.). Atal Pension Yojana. Retrieved from https://www.pfrda.org.in/APY/Home/APY [3] Government of India. (n.d.). National Pension System. Retrieved from https://www.pfrda.org.in/nps/Home/NPS [4] Government of India. (n.d.). NPS Tier I Account. Retrieved from https://www.pfrda.org.in/nps/Account/TierIAccount [5] Government of India. (n.d.). NPS Tier II Account. Retrieved from https://www.pfrda.org.in/nps/Account/TierIIAccount
Retirement planning in these schemes is crucial, as the Atal Pension Yojana and the National Pension System both emphasize securing the financial future of individuals through unique offerings. While the Atal Pension Yojana provides a simple, fixed monthly pension for unorganized sector workers with flexible finance options, the National Pension System caters to a broader demographic, offering more investing possibilities and the potential for higher pensions through personal-finance management.
