The Atal Pension Yojana (APY) provides a guaranteed monthly pension ranging from Rs 1,000 per month to Rs 5,000 per month from the age of 60 in return for fixed monthly contributions in your working life (18 to 60 years). A Rs 5,000 pension per month looks like a poor man’s pension, probably not even enough to pay for your monthly eat-out spending, Netflix subscription and Uber bill. Even if it does mean something in today’s money, it certainly isn’t going to be in 10, 20 or 30 years down the line when you retire.
That is true of course but actually, your APY pension can be a lot more than Rs 5000, if you check the fine print.
Guaranteed ‘Minimum’ Pension
Official APY documents describe the APY pension as a guaranteed minimum pension. They further add that you could get a higher pension depending on how the APY investments perform.
How has the APY performed? The NPS Trust Annual Report for 2016-17 puts this at 13.7% to 14.2% for FY 2015-17. It also put the returns at 11.4%-11.6% since inception in 2015. Returns of this magnitude are more than sufficient to fund the guaranteed minimum pension along with the return of corpus, which we estimate, can be met by a roughly 8% annual return. So what becomes of this extra money?
In an emailed response to our queries, the PFRDA has said, ‘If the corpus generated during accumulation stage is higher than the corpus required to purchase the minimum guaranteed pension, the subscriber will get an enhanced pension.” At current annuity rates, an annuity with return of purchase price will come at approximately 5-6% of the subscriber corpus.
In other words, to purchase an annuity of Rs 5,000 a month or Rs 60,000 per year, you will need a corpus of about Rs 12 lakh. If your APY corpus exceeds this amount, you will get a higher pension. At current contribution levels, and returns of 11-13% over the long term, this is highly possible.
These questions assume significance in the light of reports that the government wants to hike the guaranteed minimum pension in the Employees Pension Scheme (a component of the EPF) which is given to organised sector employees. The EPS has a current guaranteed minimum of Rs 1,000 per month, same as APY. This is proposed to be hiked to Rs 2,000 per month.
We asked the PFRDA if any such proposal was being considered with respect to the Atal Pension Yojana. In the emailed response, PFRDA said that a proposal for increasing the maximum entry age from 40 to 50 and for increasing the maximum guaranteed pension from Rs 5,000 per month to Rs 10,000 per month have been placed with the Government of India.
In other words, both your guaranteed pension and actual pension under the APY can be raised.
The existing table of contributions for a guaranteed pension of Rs 1,000 to 5,000 is available here. APY pensions are fully taxable. Government co-contributions are only available (for five years) if you are not a beneficiary of any other social security scheme or an income tax payer.
It also pays out a lump sum to your nominees on your death. The APY has close to 1 crore subscribers. You can find out more about it here.