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Key Differences Between Atal Pension Yojana (APY) and National Pension System (NPS)

Personal Finance

During retirement, one typically stops working and therefore does not have a steady stream of income. The government provides two pension programmes to encourage saving and investing for retirement: National Pension System and Atal Pension Yojana. One must choose a scheme depending on personal preference, as they are distinct from one another. While it’s true that both plans can help ensure you have enough money in retirement, they do it in different ways.

What is the NPS scheme?

Initiated by the government, the National Pension System (NPS) scheme is a retirement savings programme with a long-term focus. Employees in the public, private, and unorganised sectors are eligible to participate. It is managed by the Pension Fund Regulatory and Development Authority.

You will have to make payments into a pension account throughout your work life as part of the programme. You can contribute till 60 years of age. After retiring, you will be eligible to withdraw a portion of the fund. The remainder will be distributed to you in the form of monthly pensions. If you have a low-risk tolerance, you can take advantage of this opportunity to put your money somewhere secure.

The NPS scheme provides its participants with access to four distinct investment funds and two distinct investing strategies. You can select the Auto pick strategy and risk profile to have your money invested across all four funds offered. The scheme’s return is market-dependent. At the end of the term, you can take a lump payment of up to 60% of the collected corpus. The remaining 40% will be distributed to you as an annuity for the rest of your life.

What is the Atal Pension Yojana?

The unorganised sector now has access to a pension programme because of the Atal Pension Yojana. The major objective of the system is to safeguard Indian citizens against disease, accidents, and other disasters. It is the responsibility of the Pension Fund Regulatory Authority of India to oversee the funds contributed to the pension plan in India.

You have until you turn 40 to invest, and then when you turn 60, you will get the money from the scheme. You can choose from five different pension amounts ranging from Rs. 1000 to Rs 5000. You decide how much of a pension you’ll need when you retire.

The amount you need to pay to the system is determined by your age, the pension amount you select, and the contribution frequency you select. The assured pension amount will be paid out throughout your and your spouse’s lifetimes once the plan matures.

Similarities and differences between the NPS scheme and APY scheme

There are a lot of similarities between the Atal Pension Yojana as well as the NPS scheme. To name a few:

  1. Each plan is designed to help you save for your golden years in retirement.
  2. The Pension Fund Regulatory and Development Authority oversees both programmes (PFRDA).
  3. Both the NPS and the APY provide a guaranteed lifetime income stream for retirees once the schemes reach maturity.
  4. You can deduct up to INR 1.5 million from your taxable income if you contribute to both programmes per Section 80 CCD (1). Contributions to any programme up to INR 50,000 are eligible for a tax break per Section 80 CCD (1B).
  5. Any money you take out of either plan as a pension will be subject to income tax at your rate.

The differences are laid out in the following table, which should help you better understand them:

FeaturesNPSAtal Pension Yojana
Membership Eligibility AgeThe lowest age to join the NPS scheme is 18 and the maximum is 60.The minimum age to join Atal Pension Yojana is 18 and the upper age limit to participate is 40.
The plan’s takersInvestment in the NPS scheme is open to both Indian nationals and non-resident Indians.Investment in the Atal Pension Yojana is restricted to Indian citizens and permanent residents.
Retirement IncomeNPS cannot ensure a retirement income.A secure retirement income is yours to count on thanks to the Atal Pension Yojana.
Tax BenefitWhen contributing to an NPS account, investors can receive a tax credit of up to Rs. 2 lakhs.There are no tax advantages for participating in the Atal Pension Yojana.
WithdrawalsWithdrawals before their due date are only permitted from Tier 2 accounts.You cannot access your funds before the conclusion of the term under the Atal Pension Yojana. Withdrawals may be considered in the event of the investor’s untimely death or serious health problems.
Account TypeTiers 1 and 2 accounts are available to NPS participants.To participate in the Atal Pension Yojana, a single account is required.
InvestmentsInvestors in the NPS have access to a variety of investment vehicles.No freedom of investment choice is provided by Atal Pension Yojana.
Fiscal Support From the GovernmentUnlike traditional pension plans, NPS requires all contributions to come solely from the investor.As an investor in the Atal Pension Yojana, you will receive financial backing from the government.

Same but different: Choose your retirement investment wisely

Atal Pension Yojana, like the NPS scheme, is an investment scheme that will help you financially in retirement. One may be forgiven for thinking there is no distinction between the two retirement plans, given that both were created by the Government of India and thus are available to the public. However, this is not true. There are essential distinctions between the two systems. We hope this blog has been helpful for your clarity and eases your decision-making process. For more information or to know how to apply online to the Atal Pension Yojana or the NPS scheme, be sure to explore the Piramal Finance website and explore their products and services for the same.