How Does Atal Pension Yojana Work?

The Atal Pension Yojana (APY) is a government-backed pension scheme launched by the Government of India in 2015 to provide financial security to individuals in their retirement years. The scheme is aimed at people in the unorganized sector who do not have access to formal pension plans. The scheme ensures that subscribers receive a fixed monthly pension after they reach the age of 60. The government also provides co-contribution for the first few years to encourage participation, especially among low-income groups.

How Does Atal Pension Yojana Work?

The Atal Pension Yojana is designed to provide a guaranteed pension to subscribers upon reaching the age of 60. Here is a breakdown of how the scheme functions:

1. Eligibility Criteria

To participate in the Atal Pension Yojana, individuals must meet the following criteria:

• Age: The individual must be between 18 to 40 years of age when enrolling.
• Bank Account: The individual must have a bank account that is linked with their Aadhaar number.
• Income: The scheme is open to all citizens of India, but it primarily targets individuals working in the unorganized sector who do not have access to formal pension schemes.
• Contribution: Participants are required to contribute a specific amount every month, which depends on the pension amount they choose for their retirement.

2. Pension Options

Under the APY, subscribers can choose from the following pension options that they would like to receive upon turning 60:

• ₹1,000
• ₹2,000
• ₹3,000
• ₹4,000
• ₹5,000

The contribution amount varies depending on the pension amount chosen and the age at which the individual starts contributing. The higher the pension amount chosen, the higher the monthly contribution required. The monthly pension is paid for the subscriber's entire life after reaching 60 years of age.

3. Government Co-Contribution

The Government of India offers co-contribution to the subscribers under the following conditions:

• The government will contribute 50% of the total contribution or ₹1,000 per year, whichever is lower, for the first 5 years. This is applicable only to subscribers who are between the ages of 18 and 40 and who are not income tax payers.
• The government co-contribution is provided to incentivize participation from low-income individuals and those from the unorganized sector.

4. Contribution and Payment

Monthly Contributions: Subscribers are required to contribute a fixed monthly amount based on the selected pension amount. Contributions start from as low as ₹42 per month (for individuals starting at age 18) and can go higher based on the selected pension amount.

Example of Monthly Contribution (based on chosen pension and age):

• For a ₹5,000 pension, an 18-year-old may have to contribute ₹210 per month.
• For a ₹1,000 pension, a 40-year-old may need to contribute ₹100 per month.

Payment Frequency: The contributions are made on a monthly basis and can be paid through bank accounts. The contributions can be automatically deducted through the auto-debit facility linked to the bank account.

5. Withdrawal or Pension

On Reaching Age 60: Once the subscriber reaches the age of 60, they begin to receive the selected fixed monthly pension for life. This amount is transferred to their bank account.

Spouse's Pension: In case of the subscriber's death before they turn 60, the nominee or spouse can receive the accumulated corpus as a lump sum amount. After the subscriber's death, the spouse will also continue to receive the pension after turning 60.

Example: If the subscriber dies before turning 60, their nominee will receive the pension corpus in a lump sum. However, if the subscriber dies after 60, the spouse will continue receiving the monthly pension as chosen by the subscriber.

6. How to Enroll

Bank Enrollment: Interested individuals can enroll for the APY at any participating bank branch or through online banking platforms.

Documents Required:

• Aadhaar card
• Bank account details (linked with Aadhaar)
• Mobile number for notifications

7. Tax Treatment

Tax Benefits: The contributions made to the Atal Pension Yojana are eligible for tax benefits under Section 80CCD(1) of the Income Tax Act. The tax deduction is applicable to the contributions made to the APY under the overall limit of ₹1.5 lakh under Section 80C.

Taxation of Pension: The pension received under APY is taxable as income under Income from Other Sources after reaching the age of 60. However, the monthly pension is treated as a part of regular income and is taxed according to the individual's income tax slab.

Benefits of Atal Pension Yojana

• Guaranteed Pension: It provides a fixed, guaranteed monthly pension after the subscriber turns 60, ensuring financial security in old age.
• Government Contribution: The government co-contributes to the pension savings for the first 5 years, helping individuals start their pension savings with a higher initial amount.
• Low Contribution Amount: The scheme allows individuals to start contributing with a very low amount, making it accessible to a large section of the population.
• Universal Access: It is available to all citizens of India, especially focusing on workers in the unorganized sector.

Example

Shyam, a 30-year-old man, decides to enroll in the Atal Pension Yojana with the goal of receiving a ₹3,000 monthly pension at the age of 60. Since he is 30 years old, he will need to contribute ₹143 per month. Over the years, his contributions will accumulate, and when Shyam turns 60, he will start receiving ₹3,000 monthly as his pension.

Additionally, since he is not an income tax payer, Shyam will receive a government co-contribution of 50% of his contribution or ₹1,000, whichever is lower, for the first 5 years of his enrollment.

Conclusion

The Atal Pension Yojana (APY) is a well-structured pension scheme that provides a reliable retirement income to individuals, particularly in the unorganized sector. With government support through co-contributions and a low minimum contribution requirement, it offers an easy and effective way for individuals to secure their post-retirement life. Through small regular contributions, individuals can build a substantial pension corpus that ensures financial security after retirement.