For someone looking for a fixed pension during their retirement, the guaranteed pension scheme of the Government of India — Atal Pension Yojana (APY) — can be worth a look. The APY pension scheme is administered by the Pension Fund Regulatory and Development Authority (PFRDA) and is available to only those who are between 18 and 40 years of age. The other criteria to invest in APY is that one needs to have a savings account in a bank or a post office. APY pension scheme is a deferred pension scheme, i.e. one needs to keep contributing regularly till age 60 and, thereafter, a fixed amount of monthly pension will begin.
Here are a few lesser-known APY pension scheme details to know before you invest:
1. Frequency of contribution
In the initial years, the only option to pay APY contributions was on a monthly basis. However, the individual subscribers also have an option to make the contribution on a quarterly or half-yearly basis in addition to a monthly basis to get APY pension from age 60.
2. Guaranteed pension
The pension amount is a fixed amount that the subscriber is assured to receive from age of 60. However, the actual returns generated by the government may vary. As per the rules, if the accumulated corpus based on contributions earns a lower than estimated return on investment and is inadequate to provide the minimum guaranteed pension, the Central Government would fund such inadequacy. Alternatively, if the actual returns during the accumulation phase are higher than the assumed returns for minimum guaranteed pension, such excess will be passed on to the subscriber.
3. Tax benefit in APY
The amount of investment into APY qualifies for deduction under section 80CCD (1) of the Income-tax Act, 1961 as APY has been notified a pension scheme by the government. The pension that one gets, however, forms a part of one’s total income and is taxed as per one’s tax rate.
4. APY chart – Contributions and corpus
In APY, there is a minimum guaranteed pension of Rs.1000 per month or Rs. 2000 per month or Rs. 3000 per month or Rs. 4000 per month or Rs. 5000 per month. As per the APY chart, these are the APY scheme benefits:
As per the APY calculator, for a minimum guaranteed pension of Rs. 1000 per month, the monthly contribution will be range between Rs 42 and Rs 264 for entry age of 18 to 39. The return of corpus to the nominees will be Rs 1.7 lakh, irrespective of the entry age.
Simiarly, the APY calculator shows that for a minimum guaranteed pension of Rs. 2000 per month, the monthly contribution will be range between Rs 84 and Rs 528 for entry age of 18 to 39. The return of corpus to the nominees will be Rs 3.4 lakh, irrespective of the entry age.
For a minimum guaranteed pension of Rs. 3000 per month, the monthly contribution will be range between Rs 126 and Rs 792 for entry age of 18 to 39. The return of corpus to the nominees will be Rs 5.1 lakh, irrespective of the entry age.
For a minimum guaranteed pension of Rs. 4000 per month, the monthly contribution will be range between Rs 168 and Rs 1054 for entry age of 18 to 39. The return of corpus to the nominees will be Rs 6.8 lakh, irrespective of the entry age.
For a minimum guaranteed pension of Rs. 5000 per month, the monthly contribution will be range between Rs 210 and Rs 1318 for entry age of 18 to 39. The return of corpus to the nominees will be Rs 8.5 lakh, irrespective of the entry age.
The NPS Trust website has the APY calculator to help one calculate the tentative pension and lump Sum amount to expect on maturity or 60 years of age based on regular contributions.
5. Discontinuation
In case one stops making a contribution towards APY, the discontinuation of payment of contribution will not deactivate the APY account immediately. As per the rules, the account will not be deactivated and closed till the account balance with self-contributions minus the Government co-contributions, if there is any, becomes zero due to deduction of account maintenance charges and fees.
6. Penalty
If one makes a delayed payment towards APY, there is a penalty levied for it. The penalty on delayed payment is Rs. 1 per month for the contribution of Rs 100, or part thereof, for each delayed monthly payment instead of different slabs in the past.
7. Renew APY account
In case of default in payment of contribution, one needs to regularise the APY account by paying the overdue amount along with the penalty amount. Once the account is regularised, the pension becomes guaranteed under the scheme.
8. Premature exit
Earlier, any premature exit from the APY scheme before the age of 60 was not allowed except in the event of the death of the subscriber or terminal disease. Subsequently, the rules were changed and one can exit APY voluntarily, subject to the following conditions:
- The contributions made by the subscriber to APY, along with the net actual interest earned on the contributions will be made after deducting the account maintenance charges, and
- If there is any co-contribution made by the government, it will not be returned along with interts earned on the contributions.
9. Government’s co-contribution
All those who had joined the APY before 31st March 2016 and are not members of any statutory social security scheme and who are not income taxpayers get a co-contribution from government into their APY account. The central government co-contributes 50 per cent of the total contribution made by the subscriber or Rs. 1000 per annum, whichever is lower for a period of 5 years, i.e., from Financial Year 2015-16 to 2019-20,
10. Premature death
In case of premature death of APY subscriber i.e. death before 60 years of age, the spouse of the subscriber has the option to continue contributing to APY account of the subscriber, for the remaining vesting period, till the original subscriber would have attained the age 60 years. In case of death of both subscriber and spouse, the entire pension corpus would be returned to the nominee.
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