How does Atal Pension Yojana work?

Posted by neha sharma on May 13th, 2019

The Atal Pension Yojana is a social security scheme that was introduced to provide monthly pension income to people from the unorganized sector such as maids, gardeners, skilled and unskilled labourers, sweepers, hawkers and private car drivers. However, the scheme is not restricted to anyone.

Who can open an account?

Anyone who is a citizen of India between the ages of 18 years to 40 years can open an Atal Pension Yojana account. You must also have a working and active bank account from which the contributions can be debited.

How does the scheme work?

The APY scheme is a defined contribution pension scheme. What this means is that a subscriber to the scheme has to contribute a certain amount every month till the time he reaches the age of 60 years. Depending on the contribution, the pension amount will be decided.

The APY scheme has a table of contributions which has the contributions a person has to make every month to get a certain pension. The scheme offers five different monthly pension amounts after retirement i.e Rs. 1,000 per month, Rs. 2,000 per month, Rs. 3,000 per month, Rs. 4,000 per month and Rs. 5,000 per month.

However, it has to be noted that the monthly contribution amount keeps increasing as the age of the subscriber keeps increasing. For example, contributions per month for Rs. 5,000 pension at age 22 is Rs. 292 per month. However, this amount increases to Rs. 689 per month at age 32.

The subscriber is allowed to increase or decrease contributions to match a particular pension amount once a year.

In case the subscriber dies after reaching 60 years of age, the spouse of the subscriber will get the pensions till the spouse’s death. In case of the spouse’s death, the legal heir or the nominee will get the pension amount.

However, in case the subscriber dies before completing 60 years, the spouse will have two options: exit the scheme and withdraw all contributions and stay invested in the scheme and continue making contributions till the end of the contribution period. If the spouse opts for the second option then once the account completes the required contribution period, the spouse will be eligible to draw pension.

There are annual maintenance charges for this account that will be debited from the account. In case of pension fund charges and custodian charges, this will be debited from the net asset value of the fund.

The Atal Pension Yojana works by debiting the current active account of the subscriber with the pension contribution. In case there is inadequate amount in the bank account of the subscriber, there is a penalty for delayed contributions. If there is a default in contributions for 6 months, the account will be frozen. If there is a default for 12 months, then the account will be closed and funds will be returned to the subscriber.

When it comes to withdrawals, the subscriber needs to contact the bank in which the APY account is opened to process monthly pensions. For this, a form will have to be submitted. In case of the legal heir, they are entitled to withdraw the entire pension amount.

The APY scheme does not permit a subscriber to withdraw prematurely from the scheme. However, in case the subscriber is diagnosed with a terminal illness or dies, it may be allowed.