Atal Pension Yojana to replace Swavalamban Yojana from

June 1
New Delhi, March 5
The Narendra Modi government's key social security scheme, Atal Pension Yojana (APY),
will replace the previous government's Swavalamban Yojana NPS Lite, which did not find
much acceptance among people.
The scheme will be launched on June 1 and focus on the unorganised sector. All subscribing
workers below the age of 40 would be eligible for pension of up to Rs 5,000 per month on
attainment of 60 years of age, Department of Financial Services Secretary Hasmukh Adhia
told PTI in an interview
It will be a simple product open to all bank account holders, who are not members of any
statutory social security scheme.
"To make the pension scheme more attractive, it has been decided that the government
would co-contribute 50 per cent of a subscriber's contribution or Rs 1,000 per annum,
whichever is lower to each eligible subscriber account for a period of 5 years from 2015-16 to
2019-20," he said.
The existing scheme was not getting adequate response and therefore a need was felt to
revamp the scheme and make it more attractive, simple with guaranteed returns, he added.
Adhia said: "The new pension scheme with better features would replace the existing
pension scheme (Swavalamban Yojana NPS Lite) which is targeted at workers of the
unorganised sector".
The benefit of government's co-contribution can be availed by those who subscribe to the
scheme before December 31, 2015.
Existing subscribers of Swavalamban Scheme would be automatically migrated to Atal
Pension Yojana, unless they opt out, Adhia said.
Under the scheme, the subscriber would receive the fixed pension of in the range Rs 1,000Rs 5,000 per month on attainment of 60 years, depending on contribution which would
vary at the age of joining, he said.
The minimum age of joining the scheme is 18 years and maximum age is 40 years, he said.
The minimum period of contribution by the subscriber under the scheme would be 20 years.
PTI

Atal Pension Yojna is a bad deal The guarantee in the Atal

Pension Yojna gives the subscriber a bad deal
Atal Pension Yojna (http://goo.gl/Rs9Xqi ) was announced in Budget 2015-16 as an upgrade to the
Swavalamban scheme, which will now fold into the new defined benefit pension scheme for the poor. The
pension fund regulator will administer the scheme, which is open to all unorganized sector workers who
currently do not avail of any social security scheme and have a bank account. Why this scheme? To give
clarity of future benefits to the subscriberssomething that was missing in the Swavalamban scheme,
says a government note. This is an analysis of the product. Spoiler alert: regressive is the word that
comes to mind. What is the product? It is a pension-oriented savings product that gives a defined pension
starting at age 60. It can be boarded from age 18 to 40 and exit is at age 60. The government will match
half the contribution of the subscriber, or Rs.1,000, whichever is lower. If the subscriber saves Rs.800 in a
year, the government will put in Rs.400. If the subscriber saves Rs.2,000 in a year, the government will
put in Rs.1,000. If the subscriber saves Rs.3,000 in a year, the government will put in Rs.1,000. The
monthly pension can be chosen from between Rs.1,000 a month, at intervals of Rs.1,000, and Rs.5,000 a
month. The subscriber will get the pension; on his death the spouse will get the pension, and when both
die, the nominee gets the corpus back. The annuity looks very much like the Jeevan Akshay plan from
Life Insurance Corporation of India (http://goo.gl/0QVZAU ) with the seventh option ticked. My problems
with the Atal Pension Yojna. First, I dont see the government contribution in the numbers that the Ministry
of Finance has put out. From the handout it seems that the purchase price of the annuity is given as the
indicative return of corpus. Lets work through one example. The fifth option has a pension of Rs.5,000
per month and a return of corpus of Rs.8.5 lakh. At age 30, the annual contribution is Rs.6,924. The
indicative corpus is then the final value of the sum of savings and returns earned. I find that the rate of
return at which Rs.6,924 reaches Rs.8.5 lakh is 8.44%not very different from the prevalent rates on
Public Provident Fund (PPF) and Employees Provident Fund (EPF). But if I add the government additions
to the savings for the same age and pension set, I get an internal rate of return number of 7.35% that
yields Rs.8.5 lakh. So, either the subscriber is not getting the government handout or is getting a suboptimal return. When you look at the returns on National Pension System (NPS) funds, you realize that
the subscriber of the pension scheme is getting a pretty bad deal as returns of 7.35%, or even 8.44%,
compare poorly with the return history we have of the NPS funds. The average return since financial year
(FY) 2010 on the government bond schemes of NPS is 9.09%, on the corporate bond schemes it is
10.65%, and on the equity funds it is 13.25%. An average return (of the three fund options) of 10.67%
would give the same saver above a corpus of Rs.15.81 lakh, almost double of what she is currently
getting. In giving a guarantee, the government is taking away the cream on long-term savings that will
now go to the annuity provider insurance company. The guarantee in the Atal Pension Yojna gives the
subscriber a bad dealthe sweetener is not that attractive after all. Problem two: were going back from
the clean product structure of the NPS to a world where fuzzy product structures allowed sub-optimal
returns to savers and encouraged financial firms to charge high costs. The Atal Pension Yojna is a
complicated scheme, which falls back in putting out a number that the subscriber will get rather than the
indicative return that she will earn. Even the poorest of the poor understand the concept of rates of return.
They understand that nau taka is more than double of a char taka return. IFMR Trust has a blog,
http://goo.gl/bpyzRe , on how pathetic these monthly pension numbers look post the bite of inflation in the
future. In 40 years, the value of Rs.5,000 will be Rs.710. The pulling and pushing of the NPS to suit
various left or right ideologies must stop. It is a great product; please allow it to remain so. Problem three,
and this is a big one. Were opening the gates of debate on returning to the realm of defined benefit in
pensions. There is huge pressure from the post-2004 IAS officers to return to a world of defined benefit
pensions. This will be a big error as it will totally destroy the target of limiting the fiscal deficit to 3% of

gross domestic product and revenue deficit at 0. To leave you with a scary number. Gautam Bhardwaj
and Surendra A. Dave, in a 2006 paper, (http://goo.gl/SJoEhO) estimated the implicit pension debt, or net
present value of future pension promises, in 2004 to be Rs.20 trillion. End note: As luck would have it,
while battling the numbers of Atal Pension Yojna, I happened to meet professor Muhammad Yunus at the
NDTV Delhi studiowe were both panellists for a show. Within 60 seconds, he was explaining his version
of a pension plan. People save each week a committed amount, say, 250 taka, he said. They do this for
10 years. And at the end of 10 years, we match what they have saved, he said. They can now take the
entire corpus out or put it back as a fixed deposit and earn the same interest for as long as they want. It
is a very popular scheme and the poor love it for its simplicity, said Yunus. Do the poor get a bad deal?
Nope, the product gives a compounded average return of 12.6% for a 10-year deposit. Monika Halan
works in the area of financial literacy and financial intermediation policy and is a certified financial planner.
She is editor, Mint Money, Yale World Fellow 2011 and on the board of FPSB India. She can be reached
at expenseaccount@livemint.com
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