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How Does Atal Pension Yojana Work?

Investing in a pension scheme is of extreme importance to provide income stability. To provide a contribution based pension scheme, the Government of India introduced the Atal Pension Yojana. The APY is a pension scheme that aims to provide a monthly pension to the contributor after he reaches 60 years of age.

The scheme aims to financially secure unorganized labour who don’t have access to pension products. However, the scheme is open for all Indians to invest.

The scheme operates very simply. It is a contribution based scheme in which the contributor gets a pension based on the contributions made. The APY scheme has a contribution table which defines the monthly contribution depending on your age and the monthly pension after retirement.

For example, the monthly pension for someone who is 30 years of age and wants a pension of Rs. 3,000 per month is Rs. 347.

The Atal Pension Yojana contributions  keep increasing with age. For example, to maintain a pension of Rs. 3,000, a 40 year old would have to pay Rs. 873 per month. This means it is beneficial for you to open this account as early as possible.

Eligibility criteria for APY:

  • Must be an Indian citizen
  • Between the age of 18 to 60 years
  • Needs to have an eligible bank account
  • The bank account must be linked to Aadhar card
  • KYC norms must have been done for the bank account

How does APY work:

The APY is a contribution based pension scheme. Once you decide the monthly pension amount, the monthly contributions will be auto debited from the bank account. This means you only need to make sure you meet the minimum balance requirements of your account and have enough to cover the contributions.

You can get a deduction under Section 80CCD of the Income Tax Act, 1961 for the contributions made to this scheme. The deduction is subject to the overall deduction limit under Section 80C, Section 80CCC and Section 80CCD i.e the total deduction under all these sections can be a maximum of Rs. 1,50,000.

This pension will be paid out to once the subscriber reaches 60 years of age. In case of death of the contributor, the spouse will get the pension. In case of death of the spouse, the payment will be made in lumpsum to the legal heir. It is possible to exit from the scheme in case of death of the subscriber or in case the subscriber is diagnosed with a terminal illness.

The APY invests the funds in Government securities, money market instruments, bank fixed deposits and a small portion is invested in equities. This keeps the overall risk of the investments very low.

The Atal Pension Yojana is an inclusive pension scheme that is very easy for you to start for yourself since the whole process is automated.


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