APY vs NPS: Understanding the Difference and Choosing the Best Pension Scheme
Smart Money April 12, 2022
Team LXME
APY vs NPS is a comparison of two major pension programs in India. APY stands for Atal Pension Yojana, and NPS is for National Pension System. Both initiatives are intended to provide financial security to Indian residents after they retire. In this comparison, we will look at the differences between APY and NPS, as well as its features, benefits, and downsides.
Setting money aside for your retirement is an important step. Retirement planning is important because it can help you avoid running out of money in retirement.
One can use the LXME Retirement Calculator to determine the amount of money required to save for their own retirement. Besides that, the government has introduced various schemes for the purpose of retirement & two among them are Atal Pension Yojana & National Pension Scheme. Both APY and NPS are regulated by Pension Fund Regulatory & Development Authority (PFRDA).
So, if you’ve landed on this page because you’ve been searching for Atal Pension Yojana versus National Pension Scheme to see which one is better, then this is the best you could ask for!
What is Atal Pension Yojana?
It is a pension scheme launched by the Government of India mainly focused on the unorganized sector workers with an aim to provide a minimum guaranteed pension after the age of 60 years depending on their contributions.
Features of APY –
Defined benefits – Atal Pension Yojana is a defined pension plan. After attaining the age of 60, it provides a guaranteed minimum pension of ₹ 1,000/-, ₹ 2,000/-, ₹ 3,000/-, ₹ 4,000/-, ₹ 5,000/- each month, depending on the contributions made by the subscribers.
The number of accounts & nominations – Only one APY account can be opened by the subscriber and it is mandatory to provide nominee details in the APY account.
Withdrawal in an unfortunate event – Premature exit is only allowed in case of critical illness/death.
- If the subscriber dies before the age of 60, the spouse will have an option to either continue making contributions or withdraw the entire accumulated corpus.
- In case of death of the subscriber(after the age of 60), the spouse will continue to receive the pension until death. Post that, the pension wealth will be paid to the nominee.
Tax Benefits – A tax deduction for contributions made is available up to a maximum of ₹ 2,00,000 under Section 80CCD(1) and Section 80CCD (1B) of the Income Tax Act in each financial year.
What is the National Pension Scheme?
National Pension Scheme (NPS) is a pension cum investment scheme launched by the Government of India to provide security at the time of retirement to Citizens of India. It is an attractive long-term saving avenue to effectively plan your retirement through investing in different asset classes available under NPS. One can open two types of accounts under NPS: Tier I Account and Tier II Account.
A subscriber of Tier I is required to make a minimum contribution of ₹ 1000 in a financial year whereas there is no minimum balance required for Tier II Account.
Features of NPS –
Flexibility – Investors can select the asset classes according to the options available, select the Pension Fund Managers as per their wish and make investments at any time of the year.
Economical – NPS is a low-cost product compared to other investment instruments offering such features.
Tax Benefits – A tax deduction for contributions made is available up to a maximum of ₹ 2,00,000 under Section 80CCD(1) and Section 80CCD (1B) of the Income Tax Act in each financial year.
Returns – NPS offers market-linked returns and the investor has an option to change the pension fund manager once a year if they are not satisfied with the performance of the fund.
Premature Withdrawal – It is mandatory for an investor to invest in NPS till the age of 60 years. However, partial withdrawals of up to 25% of the contributions made are allowed after 3 years from the date of account opening. And this restriction is applicable only for Tier I Accounts.
Withdrawal at 60 years – In Tier I, the investor has to take an annuity of at least 40% of the accumulated corpus and the rest can be withdrawn as a lump sum. However, there is no lock-in for NPS Tier II.
Related Article You may Like :- Right time to withdraw your investments?
FAQs – Common Questions on APY vs NPS
Can I have APY and NPS both?
Yes, you can have both APY and NPS accounts simultaneously. However, you need to meet the eligibility criteria for each scheme and maintain the minimum contribution amount for each account.
Which investment is better than NPS?
There is no one-size-fits-all answer to this question as the best investment option depends on your financial goals, risk appetite, and investment horizon. However, some investment options that can be considered as alternatives to NPS are Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), and Unit-Linked Insurance Plan (ULIP).
Which investment is better than NPS? Is APY tax-free?
The contributions made towards APY are eligible for tax benefits under Section 80CCD of the Income Tax Act, 1961. However, the pension received from APY is taxable as per the income tax slab of the individual. In the optimized format, the answers are presented in a concise and easy-to-read format using bullet points.
To know more about APY and NPS you can watch these videos below:
APY – Atal Pension Yojana
NPS – National Pension System
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