The Buy Desk
According to the annual report of the National Pension System Trust (NPS Trust), Atal Pension Yojana is the most popular social security scheme under the National Pension System. It is the most subscribed scheme in non-metro cities. So far more than 2.8 crore people have joined APY (Atal Pension Yojana). More than 66% of the 4.2 crore National Pension System (NPS) subscribers have opted for Atal Pension Yojana at the end of 2020-21. Both the National Pension System (NPS) and Atal Pension Yojana (APY) are two retirement specific investments offered by the Government. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Let’s have a look at how these two schemes work and what their features are.
National Pension Scheme
It is a contributory investment cum retirement scheme. The subscriber contributes monthly in the scheme to create a corpus for his/her retirement. The subscriber can withdraw the corpus from NPS only after he/she turns 60 years of age. Upon maturity, an individual is allowed to withdraw only 60% of the invested amount. With the rest of the 40% amount, he/she will have to purchase an annuity and this will be paid out as a monthly pension to the subscriber.
Atal Pension Yojana
Atal Pension Yojana (APY) is a government-sponsored social security scheme. It offers a guaranteed minimum pension of Rs 1000 and a maximum of up to Rs 5000 depending upon the contribution amount. You could contribute as low as Rs 80 or as high as Rs 1500. It will depend upon what kind of pension you want from this scheme after you turn 60. All bank account holders can join the scheme.
Tax Benefit
The contribution made to both NPS and APY is eligible for tax deduction up to Rs 1.5 lakh under Section 80C of the Income Tax Act. With NPS you can also get an additional tax deduction of up to Rs 50,000 under section 80 CCD(1B).
Key Differences between NPS & APY
Age limit
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NPS – Entry age is 18 and the maximum age of entry in NPS is 70 years.
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APY – Entry age 18 years and the maximum age being only 40 years.
Eligibility
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Apart from Indian citizens even NRI’s are allowed to enrol in NPS.
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Only resident Indian Citizens can subscribe to APY.
Return
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NPS doesn’t give a guaranteed return or a pension. The subscriber invests in market-related NPS funds and as per their performance, you get a return. For receiving pension the subscriber mandatorily buys annuities.
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APY offers a lifelong pension to the subscriber, lifelong pension to the spouse after the subscriber’s demise.
Withdrawals
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You are allowed to prematurely withdraw money from the corpus for certain specific events before you turn 60 years of age. You can only withdraw a maximum of 20% of the corpus.
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Atal Pension Yojana does not allow any partial or premature withdrawal prior to the end of the term. Only in the case of demise of the subscriber or critical illness is it possible to withdraw the accrued balance early.
Where do these schemes invest?
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NPS invests in 4 types of funds which puts your money in equity, corporate debt, government bond or alternative investment funds. You can choose to invest as per your risk-taking ability.
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APY allocates money only in government securities.
