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The Indian government is very keen to ensure financial protection for the unorganized sector employees, particularly concerning their post-retirement pension provisions. Launched by the Prime Minister, Narendra Modi on May 9, 2015, Atal Pension Yojana Scheme is an initiative towards this movement and the scheme has completed 5 years of successful implementation. It aims to protect old-age income to employees in the unorganized sector. Atal Pension Yojana (APY), the Government’s flagship social security programme, has completed five effective years of tackling the prolonged issues of income among workers in this sector and forcing them to save happily for their retirement. Thus, in the year 2015-2016 budget, the Government of India had announced this new scheme and The Atal Pension Yojana is focused on all Indian citizens.
NPS (National Pension Scheme) is an attempt to find a permanent solution to the issue of having insufficient income post-retirement. As a rich step in the reform of pensions, the Indian government through NPS has made a move from a defined benefit pension scheme to a defined contribution-based national pension scheme that was introduced in 2004 for all the Indian citizens except the armed forces. APY is essentially a pension scheme aimed at touching the unorganized sector to maintain a sense of social security for people. There’s an option to get Rs1000, 2000, 3000, 4000 or 5000 fixed pension on reaching the age of 60. The pension provided to the people is regulated by Pension Fund Regulatory and Development Authority. Pension Fund Regulatory and Development Authority (PFRDA) was established on 10th October 2003 by the Government of India (GOI) to increase and regulate the pension sector in the country. This social security scheme was introduced as a substitute to the Swavalamban Yojana from the previous government which was not well accepted by people. APY aims to help the workers save money for their old age while working and to guarantee returns after retirement. The scheme also promises a Central Government co-contribution of 50 per cent of a worker’s total prescribed contribution, up to Rs. 1000 per annum, but only to those who joined APY before December 2015.
Besides, the scheme also makes the subscribers eligible to Section 80(CCD)(1). Investment in Atal Pension Yojana or NPS up to ₹ 1.5 lakh qualifies for an income tax deduction. But the total amount of deduction under sections 80C, 80CCC and 80CCD cannot exceed ₹ 1.5 lakh. Also, investment up to ₹ 50,000 in the Atal Pension Yojana or NPS is deductible from taxable income under Section 80CCD (1B) of the Income Tax Act, 1961.
Types of insurance sector in India
- Life insurance
- General insurance
- Miscellaneous insurance
Life insurance- Life insurance is generally taken up for two reasons, first is for the risk coverage and second is for the investment objective. Under the risk coverage factor, some specific amount is provided on the occurrence of an event whereas, under-investment factor, some amount is deposited to get higher returns. The pension schemes come under this kind of Insurance.
Eligibility criteria for Atal Pension Yojna
The people can avail the benefits of APY-
- They are an Indian citizen.
- Have a valid bank account.
- Are between the age of 18 to 40 years.
- Have contributed a minimum of 20 years.
Significance of Atal Pension Yojana
Retirement benefit– The principal advantage of Atal Pension Yojana is the retirement income. The monthly pension is paid out, depending upon the contributions received. Such pension numbers are Rs. 1,000, Rs. 2,000, Rs. 3,000, Rs. 4,000 and Rs. 5,000. The contribution rates are different for those pensions. The pension is paid to the spouse in case of the subscriber’s death.
Death benefits– Death benefits accrue to the contributor’s spouse under the Atal Pension Yojana. The pension automatically vests to the spouse who is the designated candidate upon the contributor’s death. The nominee would get the predefined corpus number for the specific pension slab in case of the contributor’s and the spouse’s death. In the event of a contributor’s death before the age of 60, the spouse has the option of continuing with the Atal Pension Yojana account and earning benefits under it or closing the account and withdrawing the contributions and dividends thereon.
Tax benefits- The government provides tax benefits on contributions made to the scheme to allow people to invest in the Atal Pension Yojana. The Atal Pension Yojana tax benefits can be availed under Section 80CCD (1B), to the tune of Rs. 50,000 over and above the Rs. 1.5 lakhs. It assists in reducing subscriber’s taxable income.
Features of Atal Pension Yojna
- Every Indian citizen, aged between 18 to 40 years is eligible to apply for this scheme.
- To apply for the scheme, the applicants must have a savings bank account. The bank account registered for the scheme should have an auto-debit facility so that the premium could be debited automatically. Contributions to the Atal Pension Yojana can be made at monthly/quarterly/half-yearly intervals
- For the Atal Pension Yojana, it is mandatory to have a mobile number, which must be registered with the bank.
- To apply for the pension, one must not be a tax-payer i.e. the annual income should be below the tax bracket.
- As per the mandate of the government, the Atal Pension Plan provides a pension of Rs. 1000 to Rs.5000 to the beneficiary after they turn 60. If the appointed beneficiary dies before turning 60, the pension will be paid to the beneficiary’s spouse. In the event of the death of both the beneficiary and their spouse, the accumulated funds will be given to the nominee.
- Another significant feature of Atal Pension yojana benefits is that the scheme is governed by the Fund Regulatory and Development Authority, which means that the scheme is safe and secured as it has a regulatory body to govern it.
Scope of improvement
Despite being an attractive scheme for the unorganised sector, there are few hitches which can be amended by the government to improve its initiative. The contribution of the government is an amount equal to 50% of the subscribers’ contribution or Rs. 1000 per annum, whichever is lower and the contribution by the government is only for five years. To gain the confidence of the subscribers, the contribution should be made proportional. Also, the return percentage is low enough for the people, which eventually discourage them to invest in the scheme. The return percentage is 0.59% per month or 7.1% per annum. As reported on the PFRDA website in the circular dated 2 May 2016, voluntary exit in APY is generally not permitted which is a major drawback of the scheme. Nevertheless, it may be allowed in case of extraordinary circumstances such as terminal illness, or subscriber’s death. If a subscriber who has made use of government co-contribution under APY wants to voluntarily leave APY at a future date, only the contributions made by him to APY shall be reimbursed, along with the total actual accumulated revenue received from his contributions (after deducting the account maintenance fees). In addition to it a member of the Social Security Schemes under the following enactments would also not be eligible to receive Government co-contribution:
1.The Coal Mines Provident Fund and Miscellaneous Provision Act, 1948.
2. Employees’ Provident Fund & Miscellaneous Provision Act, 1952.
3. Seamen’s Provident Fund Act, 1966
4. Assam Tea Plantation Provident Fund Scheme Act, 1955.
5. Jammu Kashmir Employees’ Provident Fund & Miscellaneous Provision Act, 1961.
After liberalization and economic reforms, the Indian insurance industry seems to have a noticeable impact on market dynamics; still, a huge amount of work needs to be done in an organized and sustainable manner for prospective growth and business development. Given the fast penetration and density increases in the last 10 years, India remains largely an under-penetrated market. The aim of the Atal Pension Yojana is to provide financial pension support to the unorganised sector of the market.
The major drawback of the scheme is its unattractive features which are not enjoyed by society. There is a requirement of essential changes in the basic features related to the amount of pension and claim settlement. Atal Pension Yojna is yet a good investment for those who aim to contribute their limited funds for a longer period. It is considered a landmark move by the government of India towards pensioned society from pension less society.
Author: Nivedita Yadav from Vivekananda Institute of Professional Studies.
Editor: Harinie.S from Symbiosis Law School Hyderabad.