Atal Pension Yojana vs NPS: Key differences, benefits and who should choose which

When people are planning for retirement, most of them look for government-backed pension schemes that can provide assured and regular income after they exit the workforce. Two such options include the Atal Pension Yojana (APY) and the National Pension System (NPS) which are designed to encourage long-term retirement savings but comes with different features and target audiences.

APY is primarily meant to benefit workers in the unorganised sector of the country, whereas NPS is open to a broader range of individuals looking to accumulate retirement savings through regular contributions.

Features and target audience of APY

Launched in 2015 and regulated by the Pension Fund Regulatory and Development Authority (PFRDA), the Atal Pension Yojana was designed to provide a guaranteed minimum monthly pension after the age of 60. However, it only caters to the poor, underprivileged, and unorganised sector workers.

Under APY, subscribers can choose a pension of ₹1,000, ₹2,000, ₹3,000, ₹4,000 or ₹5,000 per month. The contribution amount depends on the subscriber's age at entry and the pension option selected.

The most attractive feature of this scheme is that it offers assured payout each month. Since the pension amount is guaranteed by the government, investors know exactly how much money they will receive when they no longer have an active income from employment.

There is another good news APY subscribers which would increase the appeal of this scheme. PFRDA is considering demands to raise the maximum monthly pension available under the Atal Pension Yojana, according to a PTI report. As of now, the existing rules remain the same until revisions are formally announced.

Who is eligible to apply for Atal Pension Yojana?

An account in the scheme can only be opened by people who meet certain criteria mentioned by the regulatory body:

• The scheme is open to all Indian citizens between 18-40 years of age.
• Since October 2022, Indians who pay income tax are deemed ineligible.
• You must have an Aadhaar-linked bank account and valid mobile number.
• You must commit to making contributions for at least 20 years.
• Since it replaced the erstwhile Swavalamban Yojana, all previous beneficiaries were automatically migrated to APY.

Individuals who do not meet the eligibility criteria for APY cannot enroll in the scheme. However, they can consider NPS, another government-backed retirement savings option that is open to a broader range of subscribers.

Features of National Pension System

NPS is a voluntary retirement savings scheme regulated by PFRDA. Unlike APY, NPS follows a market-linked investment approach, with returns determined by the performance of underlying portfolio across asset classes such as equity, corporate bonds and government securities.

The scheme allows subscribers to decide their contribution amounts and investment allocation in each asset class. This flexibility makes it a suitable pension option for salaried individuals, self-employed professionals and long-term investors who can stay invested for a long period of time.

However, there's a crucial caveat that investors must know. Since returns are linked to financial markets, there is no guaranteed pension amount that will be disbursed on a monthly basis.

Who can apply to NPS?

Here are the core eligibility conditions to apply to the scheme:

• The scheme is open to people aged 18 to 85 years at the time of application submission.
• The scheme is open to Indian citizens (Resident and Non-Resident Indians) and Overseas Citizens of India (OCIs).
• Hindu Undivided Families (HUFs) and Persons of Indian Origin (PIOs) are not eligible to apply.
• NPS is strictly an individual pension account and cannot be opened on behalf of a third party.