Portfolio

Take note of changes in Atal Pension Yojana

Satya Sontanam | Updated on July 08, 2020 Published on July 08, 2020

Subscribers need to get in touch with their bank for modalities of paying pending subscription

To help ensure regular cash flows during the silver years, the Atal Pension Yojana (APY) seeks to provide fixed monthly pension to subscribers from the age of 60. Under the APY, subscribers can receive a fixed pension of ₹1,000 to ₹5,000 per month, depending on their monthly contributions during the contribution phase as well as the age of joining the scheme. While the APY is primarily focused on workers in the unorganised sector, it is open to all citizens of India. Those between 18-40 years of age can enrol.

There are two recent changes in this scheme which subscribers should take note of .One, the auto debit facility for contributions towards the APY has resumed this month. Also, from now on, the APY subscribers can upgrade or downgrade the desired pension amount under the scheme any time during the year. Here, we take a closer look at these changes and what it means to its 2.28 crore subscribers.

Pay pending contributions

The auto-debit from a savings bank account/post office savings bank account ― a general mode of making contributions to the APY scheme ― was stopped from April 11 till June 30, 2020. This was done to provide relief to the APY subscribers ― majority of those who belong to the lower strata of the society ― from the burden of having to keep contributions going even during the lockdown period.

From July 1, 2020, the auto-debit of APY contributions has restarted. Thus, from this month on, the auto-debit happens regularly on the due date, which is dependent on the subscriber’s deposit of first contribution amount.

As per the Pension Fund Regulatory and Development Authority (PFRDA), all pending APY contributions due between April-August have to be auto-debited by September 30, 2020 to avoid the late payment penalty.

The penalty amount ranges from ₹1 to ₹10 per month, based on the monthly contribution amount.

The subscriber should provide instructions to the bank on how much should be auto-deducted from the savings account each month from now on (if the subscriber chooses to contribute at monthly intervals), so that the contribution amount for the period April to August is paid by September 30.

If there’s no communication to the bank, then the bank may decide to deduct all the pending dues, in addition to the regular contribution, if sufficient funds are available in the subscriber’s savings account.

Banks are allowed to deduct more than one monthly contribution in a month. Banks are also allowed to recover the APY dues as and when funds are available in the account.

Any deduction towards the APY scheme will be adjusted against the dues on a FIFO (first-in, first-out) basis. For instance, if only one monthly instalment of APY contribution is deducted in the month of July due to non-availability of funds (to deduct all the pending dues from April), the contribution will be adjusted against April month’s due first.

The subscribers have to make sure enough funds are maintained in their savings bank accounts such that all pending dues are cleared by September 30, 2020.

Option to revise the pension amount

Under the APY, the subscribers receive the fixed minimum pension of ₹1,000, ₹2,000, ₹3,000, ₹4,000 and ₹5,000 per month, from the age of 60 years. To receive the desired pension amount, the subscribers should contribute a monthly sum which will vary based on the age at which they enrol.

Usually, in April every year, one has the option to revise the desired pension amount, based on which the monthly contribution will move up or down.

Now, APY subscribers can revise their pension amount any time in the year with effect from July 1, 2020. This is to enable APY subscribers to increase/decrease their pension as per their changed income levels and capacity to make APY contributions. However, note that the number of times a revision can be made is still limited to once a financial year. Whenever a change is made, your past, present and future contributions will be adjusted to reflect the desired pension amount. Any shortfall in contribution will have to be made good by you, and excess will be returned.

Before opting to revise, subscribers can use an online feature available under the link - https://npslite-nsdl.com/CRAlite/ that enables them to check on the contribution based on the new pension amount chosen.

One can download the revision application form online, fill it up and submit to the bank.

Suitability

The Atal Pension Yojana offers guaranteed minimum pension to the subscriber from the age of 60.. On the subscriber’s death, his/her spouse will get the pension. Later, the corpus will be returned to the nominee of the subscriber.

Assuming you start at age of 18 and contribute for 42 years to get a pension of ₹5,000 per month, the annualised return on the APY scheme works out to about 8 per cent (for a pension drawn for 30 years). Similarly, assuming you start at age 35 and contribute for 25 years to get a pension of ₹3000 every month after you turn 60, the annualised return on the APY works out to 7.88 per cent (if pension is drawn for 20 years).

The return seems reasonably attractive, considering that during downturns in the interest rate cycle, guaranteed return products can offer much lower.

Despite the highest payout from APY being capped at ₹5,000 per month, pension from this scheme can be a supplement to other means of regular income that you may have post retirement.

Contributions to the Atal Pension Yojana are eligible for deuction under Sec 80CCD if one sticks to the old tax regime.

New developments

- Auto-debit restarts after Covid-19-related pause

- Revision of desired pension amount now allowed any time during the year

- Online access to requisition forms

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Published on July 08, 2020
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