NPS vs APY: Difference between Atal Pension Yojana vs National Pension Scheme
Investing for retirement for any individual is a vital step to take. For this, the government extends two pension schemes known as Atal Pension Yojana (APY) and National Pension System (NPS). So if you have landed on this page through your constant searches for “Atal Pension Yojana vs NPS” for finding out which one is better out of the two, then this is the best you could ask for!
Scroll through to know more about the difference between NPS and APY!
A Brief Insight into NPS vs APY
Firstly, for someone thinking, “Is NPS and Atal Pension Yojana the same” then its answer is no! Continue reading to know more!
NPS or National Pension Scheme is a retirement planning scheme that extends market-linked returns. Individuals are eligible to invest in this scheme till they reach 60 years. There are two different methods of investment and four different fund categories featured in this scheme.
They can also utilise the auto choice strategy for automatically allocating investments to different funds. The financial market determines returns arising from this scheme.
On the other hand, APY or Atal Pension Yojana Scheme is also a retirement-oriented scheme that extends assured pension to individuals with low income in the unorganised sector. One can invest in this scheme before reaching 40 years of age, and this scheme attains maturity until one reaches 60 years of age.
Under this system, there exist five options for fixed pension amounts, which show a variation between ₹1000 to ₹5000. An individual chooses the pension amount to be received while making an investment in the scheme. This pension amount is selected according to age, and the amount to be contributed towards the plan is determined depending on the frequency of contribution.
Are you wondering, “can I join both APY and NPS”?
You would get an answer to that a bit later!
Differences between Atal Pension and NPS
The two schemes are different from each other. Illustrated below is a comparison between NPS and Atal Pension Yojana according to various parameters.
Age of Joining
The entry age for an individual for National Pension Scheme (NPS) is 18 years, while the maximum age is set at 65 years.
On the other hand, for Atal Pension Yojana (APY), the entry age is set at 18 years, while the maximum age limit is 40 years.
Eligibility Criteria
For National Pension Scheme, all citizens of India can join irrespective of whether they are a resident or a non-resident citizen.
For Atal Pension Yojana, Indian residents can make investments. To benefit from this initiative, they would need to possess a bank savings account or a post office savings account.
Regarding joining these schemes, an answer to the query “can you open both NPS and APY” would be given a bit later in this article.
Type of Account
Under the Atal Pension Yojana Scheme, an individual can hold just one account in his name.
On the other hand, for NPS, an investor is allowed two kinds of accounts, namely Tier I and Tier II account. The former one is mandated, while the latter one is optional for an investor.
Nomination
As per NPS guidelines, a nomination is mandatory. Also, the nominee must not be the spouse.
Similarly, for the APY scheme, a subscriber must put forward the name of a nominee without fail.
Slab of Pension
As returns are linked to the market, there are no fixed slabs of pension for NPS.
In case of the Atal Pension Yojana, individuals can select a fixed slab of pension, which must be received every month. The slab can range between ₹1000 and ₹5000.
Guaranteed Returns
The National Pension Scheme is linked to the markets, making them more volatile. Thus, investment in this instrument does not provide guaranteed returns.
The Atal Pension Yojana extends guaranteed pension after retirement.
Premature Withdrawal
As per APY guidelines, premature withdrawal is allowed under specified situations only. The subscriber's death and serious illness are two instances where the invested amount, along with any interest, is disbursed to the investor/nominee’s account. Exiting due to other reasons would allow the subscriber to acquire the investment amount only while surrendering all interest earned.
Premature withdrawals in National Pension Scheme are only applicable for Tier II accounts. When it comes to Tier I account, there are restrictions involved with them. Withdrawals from this account are only permitted starting in an investment’s third year. These withdrawals are further limited to other specific conditions like medical emergencies, marriage, purchase of a home, etc.
Partial withdrawal of funds from these Tier I accounts are permissible till a limit of 25% of the balance in the account. If an individual closes a scheme on a premature basis, 20% of the accrued corpus can be withdrawn in a lump sum. The rest, 80% of the corpus, would need to be maintained for annuities.
Investment Choice
A subscriber of the National Pension Scheme has active and auto choice options for investment. They can also opt for a fund manager for managing funds.
On the other hand, the APY scheme does not provide its subscribers with an investment choice.
Account Number
An NPS subscriber is provided with a Permanent Retirement Account Number.
Whereas the government does not offer a subscriber of Atal Pension Yojana with any permanent account number.
Government Contribution
For National Pension System, there is no government contribution to an account.
On the other hand, the government contributes a specific sum to the account, subject to certain terms and conditions.
What are the Similarities between NPS and APY?
After comparing NPS and APY, though it is certain that both these schemes are different in many ways, they also share a number of similarities between themselves. These include:
- Both schemes are referred to as retirement-oriented investments, which assist an individual in building a post-retirement fund.
- Both these schemes are regulated by PFRDA or Pension Fund Regulatory and Development Authority.
- Under Section 80 CCD (1), the contributions made to both these schemes are tax-deductible to a maximum limit of ₹1.5 lakhs. Moreover, under Section 80 CCD (1B), the contributions ranging to a maximum limit of ₹50,000 are eligible for further deduction in the case of both schemes.
- The pension benefit that an individual receives in both of these schemes is taxable according to their slab rates.
Where Should You Invest for Optimal Returns – NPS or APY?
If your query is “APY vs NPS, which is better,” this section would give you the insight to help you decide the verdict for this query.
With respect to providing pensions to Indian citizens, both schemes show differences when it comes to methods of pension return. The entire thing would be better understood by going through the details given below for these two schemes.
Returns under National Pension System
Returns under National Pension System depend on the conditions in the current market. The Net Asset Value forms the basis on which fund houses arrive at the returns. Moreover, the investment type which a subscriber opts for also comes into consideration while determining returns. An equity portfolio may yield greater returns than a conservative kind of a portfolio. Given below are returns that the different mix of portfolios generates under this scheme:
Subscriber Type: Aggressive Subscriber
Portfolio Mix: 20% investment in gilt funds, 30% investment in corporate bonds, and 50% investment in equity funds
Average Returns: 6 months – 8.31%, 1 year – 16.48%, 3 years – 9.49%, 5 years – 12.61%
Subscriber Type: Balanced Subscriber
Portfolio Mix: 33.3% investment in gilt funds, 33.3% investment in corporate bonds, 33.3% investment in equity funds
Average Returns: 6 months – 6.71%, 1 year – 11.49%, 3 years – 9.74%, 5 years – 11.75%
Subscriber Type: Conservative Subscriber
Portfolio Mix: 50% investment in gilt funds, 30% investment in corporate bonds, 20% investment in equity funds
Average Returns: 6 months – 5.36%, 1 year – 7.17%, 3 years – 9.93%, 5 years – 11.04%
Returns under Atal Pension Yojana
Below is a table mentioning the age of joining of an individual towards the scheme and their years of contribution in a single column. The next column defines their amount of indicative monthly contribution (in ₹).
In this case, individuals and their spouses would receive a fixed monthly pension of ₹1000, and the indicative return of corpus to the nominee of an individual would amount to ₹1.7 lakhs.
| Age of Joining, Years of Contribution | Indicative Monthly Contribution (in ₹) |
|---|---|
| 18, 42 | 42 |
| 20, 40 | 50 |
| 25, 35 | 76 |
| 30, 30 | 116 |
| 35, 25 | 181 |
| 40, 20 | 291 |
The following table again lists out the age of joining of an individual towards the scheme and their years of contribution in a single column. The next column defines their amount of indicative monthly contribution (in ₹).
Here, individuals and their spouses would receive a fixed monthly pension of ₹2000, and the indicative return of corpus to the nominee of the individual would amount to ₹3.4 lakhs.
| Age of Joining, Years of Contribution | Indicative Monthly Contribution (in ₹) |
|---|---|
| 18, 42 | 84 |
| 20, 40 | 100 |
| 25, 35 | 151 |
| 30, 30 | 231 |
| 35, 25 | 362 |
| 40, 20 | 582 |
Similarly, the following table again lists out the age of joining of an individual towards the scheme and their years of contribution in a single column. The next column defines their amount of indicative monthly contribution (in ₹).
Here, individuals and their spouses would receive a fixed monthly pension of ₹3000, and the indicative return of corpus to the nominee of the individual would amount to ₹5.1 lakhs.
| Age of Joining, Years of Contribution | Indicative Monthly Contribution (in ₹) |
|---|---|
| 18, 42 | 126 |
| 20, 40 | 150 |
| 25, 35 | 226 |
| 30, 30 | 347 |
| 35, 25 | 543 |
| 40, 20 | 873 |
In the same manner, the following table again lists out the age of joining of an individual towards the scheme and their years of contribution in a single column. The next column defines their amount of indicative monthly contribution (in ₹). Here, individuals and their spouses would receive a fixed monthly pension of ₹4000, and the indicative return of corpus to the nominee of the individual would amount to ₹6.8 lakh.
| Age of Joining, Years of Contribution | Indicative Monthly Contribution (in ₹) |
|---|---|
| 18, 42 | 168 |
| 20, 40 | 198 |
| 25, 35 | 301 |
| 30, 30 | 462 |
| 35, 25 | 722 |
| 40, 20 | 1164 |
The table below again lists out the age of joining of an individual towards the scheme and their years of contribution in a single column. The next column defines their amount of indicative monthly contribution (in ₹).
Here, individuals and their spouses would receive a fixed monthly pension of ₹5000, and the indicative return of corpus to the nominee of the individual would amount to ₹8.5 lakhs.
| Age of Joining, Years of Contribution | Indicative Monthly Contribution (in ₹) |
|---|---|
| 18, 42 | 210 |
| 20, 40 | 248 |
| 25, 35 | 376 |
| 30, 30 | 577 |
| 35, 25 | 902 |
| 40, 20 | 1454 |
Which is a Better and Safer Investment Option – Atal Pension Yojana vs NPS?
After going through the above section, it can be concluded that individuals seeking to take advantage of the market conditions must consider the National Pension System for making an investment. One must note that the calculation of the return would be done depending on the prevailing market conditions and would not be fixed.
However, if the individuals seek a safer option with a fixed return within a predefined range, they can take the Atal Pension Yojana into consideration for investing.
Can Anyone Invest in Both NPS and APY?
If you are wondering whether you can invest in both APY and NPS, then the answer to that is yes. An individual can enrol under both the Atal Pension Yojana and the National Pension System at the same time. But for that, you must fulfil the eligibility criteria of both schemes.
Now that you are completely aware as to which is better, the NPS or Atal Pension Yojana and since by now you also have an idea regarding the query “can NPS holders open an APY account,” go ahead and choose the best scheme for yourself.
Frequently Asked Questions
How can an individual contribute to the National Pension System?
There are three ways in which an individual can contribute to the National Pension System. Firstly, one needs to fill up a contribution slip and submit that at any PoP-SP. Next, one should visit the NPS website and make a contribution through the online mode with the help of a debit card or credit card or via a net banking facility.
Finally, one can also make use of the NPS mobile application and contribute anywhere and anytime. This app is available for iOS and Android users.
Will an individual receive a transaction statement under the National Pension System and the Atal Pension Yojana?
Yes, all subscribers of these schemes would receive a detailed transaction statement for whatever they have contributed towards the National Pension System and Atal Pension Yojana account.
Does a penalty exist for discontinuing contributions in the National Pension System and Atal Pension Yojana?
Yes, a penalty for that case does exist. If no contribution has been made in any year towards the National Pension System and Atal Pension Yojana, then a penalty would be applicable. For the APY scheme, the penalty ranges from ₹1 to ₹12 for every month of default based on the amount contributed. For NPS, the penalty is ₹100 for not making the minimum contribution.