Atal Pension Yojana

Almost every other retirement product in this paper is defined contribution: you put money in, the market decides what comes out. The APY is the opposite. You choose the pension first and the contribution is worked backwards from it, and the Government of India guarantees the result.

The scheme was launched for the weaker sections of society, specifically citizens working in the unorganised sector. It runs on the NPS architecture — a PRAN, a recordkeeper, a pension fund — but the subscriber makes none of the investment decisions the NPS otherwise requires.

The five pension slabs are Rs 1,000, Rs 2,000, Rs 3,000, Rs 4,000 and Rs 5,000 a month, payable from age 60, and on the subscriber's death to the spouse.

Eligibility. A bank account holder aged 18 to 40 at the time of joining, with an Aadhaar number or proof of having applied for one. From 1 October 2022, any citizen of India who is or has been an income-tax payer is not eligible to enrol. Workers covered by another social security scheme such as the EPF were not eligible for the government co-contribution.

The co-contribution has ended. The Government contributed 50 per cent of the subscriber's contribution capped at Rs 1,000 a year for five years (FY 2015-16 to FY 2019-20), and only for subscribers who enrolled on or before 31 March 2016. No government co-contribution is being credited at present.

Distribution. Through branches of scheduled commercial banks, regional rural banks and Core Banking enabled post offices; net-banking customers may apply online; NBFCs, MFIs and mutual fund agents may act as business correspondents. eAPY is Protean's Aadhaar-eKYC digital onboarding, which removes the branch visit. The PRAN is generated immediately.

Mechanics. Contributions are auto-debited monthly, quarterly or half-yearly from the mandated savings account. A shortfall is a default, payable in the next cycle with overdue interest; account maintenance charges continue to be deducted even while in default, and the account closes when the corpus reaches zero. Contributions are invested to government norms, predominantly in government securities, term deposits and other debt — the subscriber has no choice of investment pattern or pension fund. The CRA annual maintenance charge under APY/NPS-Lite is Rs 15.

Two people both want the top slab: Rs 5,000 a month from age 60. They differ only in when they start.

210   × 12 × 42 = Rs 1,05,840
1,454 × 12 × 20 = Rs 3,48,960

The late starter pays 3.3 times as much in total for exactly the same Rs 5,000 pension. The workbook also gives the middle case: Rs 577 a month from age 30.

Now set the early starter's lifetime outlay against the pension:

First year of pension = 5,000 × 12 = Rs 60,000
Total ever contributed            = Rs 1,05,840

He recovers everything he ever paid in under two years of drawing the pension, and the Government of India guarantees the rest of his life and his spouse's. That is the case for the scheme in one line — and the reason the eligibility screen for income-tax payers exists.

Chapter 4, section 4.1.2 (Models under the NPS), sets out the APY in full as the fourth model alongside Government, All Citizen and Corporate. Chapter 9 adds it as a separate registration category for Points of Presence, with the net-worth and profitability conditions relaxed for APY-only applicants. Expect direct recall of the pension slabs, the 18-to-40 entry window, the Rs 210 / Rs 577 / Rs 1,454 contribution figures, and the post-2022 exclusion of income-tax payers. Questions also test that the APY subscriber has no investment choice.

• Entry is 18 to 40, exit is at 60. Not 18 to 60. The narrow entry window is the whole reason a 40-year-old pays seven times what an 18-year-old pays.
• The government co-contribution is over. It ran FY 2015-16 to FY 2019-20 and only for those who enrolled on or before 31 March 2016. A question offering it as a current benefit is wrong.
• Income-tax payers cannot enrol from 1 October 2022 — "is or has been" an income-tax payer, which is broader than "currently pays tax".
• The APY subscriber chooses nothing about investments. No pension fund, no asset allocation. Contributions go predominantly into government securities, term deposits and other debt by government norms.
• Defaults do not freeze the account. Overdue interest accrues, maintenance charges keep being deducted, and the account closes when the corpus hits zero.
• The pension is guaranteed by the Government of India — this is a defined benefit, unlike everything else in the NPS family.
• On death before 60 the spouse has two options: continue contributing to the vesting age and draw the pension when due, or withdraw the accumulated corpus.