APY vs. NPS

Meaning of NPS – National Pension Scheme

The National Pension Scheme (NPS), introduced by the Indian government in 2004, is a voluntary retirement savings plan. Regulated by the Pension Fund Regulatory and Development Authority (PFRDA), it is open to all Indian citizens aged 18 to 70.

Features of National Pension Scheme (NPS):

• At maturity, 60% of the accumulated amount can be withdrawn as a lump sum, while the remaining 40% is paid as annuities for the rest of your life.

• Subscribers can choose between Tier 1 and Tier 2 accounts, accessible through a registered Point of Presence or the NPS trust's online portal.

• Investments in the NPS include a mix of government securities, fixed income, and equity tailored to the subscriber's risk profile and age. 

• The NPS Tier 1 account comes with a longer lock-in period but provides tax benefits. 

• In contrast, the Tier 2 account is voluntary, with no lock-in period and no associated tax benefits.

The NPS has gained significant popularity over the years as a flexible and tax-efficient retirement savings option.

Meaning of APY – Atal Pension Yojana

The Atal Pension Yojana (APY) is a government-backed retirement scheme introduced in 2015 to ensure a guaranteed pension for low-income individuals in the unorganized sector. 

Features of Atal Pension Yojana (APY):

• You can invest in APY from 18 years to 40 years, and the scheme matures when you reach 60. The pension amount, ranging from Rs. 1000 to Rs. 5000, can be chosen based on individual needs.

• Contributions are calculated based on age, desired pension, and contribution frequency.

• At maturity, the guaranteed pension is paid to both you and your spouse throughout your lifetime.

• The APY scheme matures when the individual reaches 60 years of age.

• You can choose the pension amount under the APY Scheme as per your need.

Difference Between APY vs. NPS

Below is a comparative table that shows the key difference between the NPS and APY:

People also calculate: NPS Pension Calculator

Similarities between APY vs. NPS

The similarities between Atal Pension Yojana (APY) and NPS are as follows:

• Management by PFRDA: APY and NPS are overseen by the Pension Fund Regulatory and Development Authority (PFRDA).

• Retirement Wealth Creation: Both APY and NPS are retirement-focused schemes designed to build a corpus for post-retirement financial security.

• Fixed Pension After Maturity: Upon maturity of APY and NPS, you receive a consistent pension amount for the rest of your lifetime.

• Tax Deductions: Contributions to APY and NPS qualify for deductions under Section 80CCD(1), up to a maximum of Rs. 1.5 lakhs. Additional deduction under Section 80CCD(1B) can be claimed on contributions, with a cap of Rs. 50,000.

• Taxable Pension Sum: Pension received from both APY and NPS is subject to taxation as per prevailing income tax laws.

• Shared Retirement Wealth Objective: Both schemes share the common goal of creating a retirement wealth corpus for contributors.

• Taxation of Received Pension: The pension received under both APY and NPS is taxable in accordance with existing tax regulations.

• Lifelong Fixed Pension: At the maturity of both schemes, you are guaranteed a fixed pension amount for the remainder of your life.

Which is Better – APY vs. NPS?

Choosing an investment plan depends on personal preferences, financial goals, and risk tolerance. The National Pension System (NPS) offers higher contribution limits and investment flexibility for those aiming to build a retirement fund. In contrast, the Atal Pension Yojana (APY) is suitable for individuals seeking a guaranteed fixed pension post-retirement, ranging from Rs. 1000 to Rs. 5000 monthly.

NPS returns vary based on market conditions, with debt instruments yielding lower returns than equity investments. APY, designed for the unorganized sector, ensures contributors receive a fixed monthly pension, calculated based on the age and contributions of the subscriber.

Wrapping it Up

The choice between Atal Pension Yojana vs. NPS depends on individual financial goals, risk tolerance, and preferences. APY offers a straightforward approach with guaranteed returns, making it suitable for those seeking stability. On the other hand, NPS provides a more dynamic investment avenue with the potential for higher returns but involves market-related risks. Ultimately, you should carefully evaluate your financial needs and investment preferences to determine which option aligns better with your long-term objectives.