Is Atal Pension Yojna (APY) - a Good Investment?

Atal Pension Yojna or APY is a retirement scheme mainly created for the lower middle class or poor people working in India’s vast unorganized sector where there is retirement benefits. However, anyone can subscribe to it. Now the question is it is a good deal or not.

25 years old Gourav Sharma works in a private company but his salary is not that much. His salary account is in a big government bank. The manager there requested him to invest in Atal Pension Yojna. Now he is not sure it is worth it or not.

If you are in such dilemma like Gourav, this article is here to help. APY is explained in detail here and I hope it will help you to form your decision. You need to spend some time to learn before forming your decision.

APY is a pension scheme where the subscriber has to contribute her/his own pension fund. It will deliver a pension amount of Rs 1000/2000/3000/4000 or 5000 as according to your choice and monthly contributions after attaining the age of 60.

The pension amount will be given for life. Even after death the subscriber’s spouse will get the same amount. After the death of the spouse the total pension amount will be handed over to the nominee.

The monthly contribution amount is calculated according to your targeted pension amount and current age. It can be as low as Rs 42. The highest monthly contribution amount is Rs 1318 for 5000 pension benefits starting at the age of 39. You can also pay the premium quarterly or half-yearly.

The contribution chart is given below. To help you to understand I am giving you the example of Gourav Sharma. Our guy is 25 years old and if he opted for the Rs 5000 pension then according to this table his premium will be Rs 376 monthly or Rs 1121 quarterly or 2219 half yearly. The nominee selected by him will get Rs 8.5 lakh after the demise of him and his wife.

The premium contribution amount for Atal Pension Yojna can be paid monthly, quarterly or half yearly. Let us see an example. Let us see the case of some 35 years old opted for Rs 5000 pension benefits. His contributions will be like that monthly: 902, quarterly: 2688 and half yearly: 5323. So annually he will have to pay Rs 10824 for monthly contributions, 10752 for quarterly and 10646 for half yearly. So, with the quarterly payment option he will save Rs 72 and the half yearly option will save Rs 178 per year. The actual savings will be a bit more if we calculate the interest earned from that amount. The total savings in (60-35) = 25 years will be Rs 1800 for quarterly and Rs 4450 for the half yearly option. So, it seems that the quarterly and half yearly premium option is better than the monthly.

According to the GOI there is a chance of increase of APY pension amount in the future. This pension fund is managed by PFRDA (Pension Fund Regulatory and Development Authority), a central government organization. According to their report the total subscriber of APY was 2.11 crore till the end of March, 2020 with a total net asset of Rs 10526 crore. Now, if the return from the fund is better than the projected amount, the subscribers will get the extra amounts and so the pension amount could be more. If the returns are lower the government will give subsidy to provide the guaranteed pension. However, there is no guarantee of more pension amount in the future.

The problem with APY is that the projected pension amount is too low. Yes, if you consider the inflation Rs 5000 or 4000 will become a negligible amount. Let us forget about Rs 1000!

Let us again bring Gourav Sharma into the discussion. He is 25 years old now and so his age of retirement at 60 is still 35 years away. So, if he opts for a Rs 5000 pension now, what will be its actual value when he will be 60? Assuming 7% inflation it will be Rs 394 or Rs 573 with 6%. If in the long run our inflation rate is kept to as low as 4% then it could be Rs 1198.

Now, such a meager pension amount could be helpful to a poor person but not so much for a middle class family.

The ROI of APY is actually very good. It has sovereign guarantee. i.e. the government of India is the guarantor here. So, it is a super safe investment.

Let us calculate the rate of return or CAGR of APY. Gourav Sharma aged 25 year has opted for Rs 5000 pension with a monthly contribution of Rs 376. It will generate a retirement corpus of 8.5 lakh for the nominee in 35 years. So, the CAGR is 7.9%.

It is a EEE category investment. That means the contributions, profit gained and the withdrawal is totally free from income tax. So, it could be calculated as profit if you are a tax payer.

We can compare APY with NPS (National Pension Scheme). However, with NPS there is no guaranteed return. It will solely depend on the performance of the funds which is market dependent. So, in case of bad performance of our economy your returns will be much lower.

You need to meet the following criteria:

You should -

1) Be a citizen of India.

2) Have age between 18 to 40 years.

3) Have a savings account in a bank or post office in India.

4) Have an Aadhar number linked with your account.

5) Possess a valid mobile number.

6) Be willing to contribute for at least 20 years in the scheme.

It is very much possible that despite being a contributor you may not like the scheme now. You may be now in dire financial conditions and want some cash to remain afloat. In that case, you can always close the APY account and get back the money you have contributed along with some gains. The total amount will be money contributed by you plus the interest earned minus the fees and charges.

To close it you need to apply in the prescribed form to the bank or post office where the account is held. It can be done any time before the age of 60. The amount refunded will be sent to your account. However, you will not get it too quickly. A wait period of 30 to 60 days should be expected.

After premature voluntary closure of APY you will get back your money with interest after deducting some fees and charges. Those fees and charges are 1)APY account opening charges, 2) account maintenance charges, and 3) account closing charges.

There is penalty if you are late in paying the APY contribution timely. It was a complex slab based system earlier. Now, it is simplified. You will have to pay Rs 1 per each delayed month per Rs 100 premium amount for the default as penalty charges.

What If Someone Stops the APY Contribution?

One may wonder what will happen if someone has stopped the premium payment of Atal Pension Yojna without applying for the account closure. No doubt, some APY accounts will meet this fate.

In such cases, the account will not be deactivated automatically. However, the account maintenance charges and fees will be deducted continuously from it. It will go on until the APY balance becomes zero. This will be the end of it.

You can check the status of your APY account from the website: npslite-nsdl.com. There you will have two options – one with the PRAN number and another without PRAN. You can search with the PRAN number along with the associated bank account number to get all the details. Without it you need to provide your date of birth, account number and name to fetch the data. In both cases you should select the appropriate view option.