Refinements Needed in the Innovative Atal Pension Yojna

16 Feb 2017

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The APY (Atal Pension Yojna) is an innovative pension scheme introduced by the Union Government of India in 2015. It is open to all citizens aged between 18 to 40 years. For those eligible (i.e. member must not be covered by any statutory social security scheme or be can income tax payer), the Union government co-contributes 50 percent of the members contribution or INR 1000 per year, whichever is lower. Such co-contribution is to be provided for five years for those joining between June 1, 2015 and December 31, 2015. The APY is operated through bank accounts, encouraging financial inclusion. There is a provision for exiting from the APY before reaching 60 years, without any penalty.

The APY combines elements of Defined Benefit (DB) and Defined Contribution (DC) methods. This is achieved by the government guaranteeing a specified amount of pension chosen by a member, but whose contribution amount, which varies with age, is also specified. Thus both contributions and benefits are defined.

This is made feasible as the difference between what is earned on investments from APY balances and minimum guaranteed amount is borne by the Union government, representing its long term contingent liability. If investment returns are higher than the minimum guaranteed, the excess is to be provided to the members as benefit, over and above the promised amount. The benefits are not adjusted for inflation.

Mukul G. Asher is a Professorial Fellow at the Lee Kuan Yew School of Public Policy.

This article was first published on on 16 February 2017.

Mukul Asher

Professorial Fellow