Government Pension Plans in India

Pension is a source of income after retirement when an individual is not able to earn regular monthly income for themselves or to sustain their livelihood. Retirement without financial stability is the most dreadful dream an individual could think of. The Government of India, keeping all the factors in mind, have launched various Government Pension Plans and schemes that offer financial coverage for individuals even after retirement to make their lives easy and stress-free without any financial burden. 

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Government Pension Plan in India offers a plethora of benefits to the senior citizens of the country. Let us look at a few Government Pension Schemes in India and understand how they work.

National Pension Scheme (NPS)

NPS or National Pension Scheme is a complete government backed, voluntary retirement plan regulated by the PFRDA (Pension Fund Regulatory and Development Authority). Under this scheme, the investor has to allocate a certain amount from their monthly income towards the NPS account during their employment period. At the age of retirement, the investor is eligible to withdraw up to 40% of the accumulated corpus, and the rest, 60%, needs to be reinvested in the annuity.

Features of the National Pension Scheme

Following are the main features of the NPS scheme:

  • Returns from an NPS scheme are generally between 8% to 10%.

  • Risk under the NPS scheme is related to equity exposure only.

  • Equity exposure can be a maximum of 75% only.

  • The Lock-in period is up till 60 years of age or the retirement age of the individual.

  • The minimum amount to be invested in an NPS scheme is Rs. 6,000, whereas the maximum does not have any limit.

  • The amount can be invested up till retirement age.

  • Only 20% of the total corpus can be withdrawn before retirement after paying taxes.

  • Up to Rs. 1,50,000 is exempted under Section 80C. Additional Rs. 50,000 is exempted under Section 80CCD.

Advantages of the National Pension Scheme

Following are the main advantages of investing in an NPS scheme:

  1. Flexibility

    NPS offers a wide range of investment options to choose from, making it one of the most flexible government-backed fund schemes available in the financial market.

  2. Voluntary Contributions

    At best part about the NPS scheme that makes it distinctive from most of the other investment options is that the investor has the authority to reduce or increase the investment amount under the scheme as per their own financial capacity.

  3. Transparency

    As National Pension Scheme is a complete government-backed scheme regulated by the PFRDA (Pension Fund Regulatory and Development Authority), transparency is guaranteed.

  4. Contained Risk

    The equity exposure under the NPS scheme is limited to 50% of the corpus of the investor. This capping helps in controlling the market volatility and ensures that the wealth created is not is not impacted.

  5. Tax Benefits

    Tax is exempted up to Rs. 1,50,000 per annum under Section 80C of the Income Tax Act, 1961. Further, Rs. 50,000 tax deductions can be availed under Section 80CCD (1B) of the Income Tax Act.

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Atal Pension Yojana (APY)

Atal Pension Yojana, regulated by the PFRDA (Pension Fund Regulatory and Development Authority), is a complete government-backed pension scheme specially designed for the unorganized sectors of India. The agenda behind this scheme is to provide financial security to the underprivileged senior citizens of India.

Features of Atal Pension Yojana

Following are the main features of the APY scheme:

  • Periodic pension amount of Rs. 1,000, Rs. 2,000, Rs. 3,000, Rs. 4,000, or Rs. 5,000 is received based on the monthly contributions made throughout the tenure by the scheme holder.

  • Individuals between the age of 18 years to 40 years can opt for an Atal Pension Yojana scheme.

  • The amount is automatically debited from the bank account of the individual on a monthly, quarterly, or half-yearly basis, as per the contributor’s convenience.

  • A savings account, either in a government approved bank or post office, is mandatory to purchase an APY scheme.

  • An individual can increase or reduce the contributions once a year.

  • In case of the untimely demise of the scheme holder, the spouse of the holder is eligible to receive the pension amount.

 Advantages of Atal Pension Yojana

Following are the main advantages of investing in an APY scheme:

  • Steady source of income after retirement that helps in fulfilling basic daily requirements of the individual.

  • It is a complete government-backed scheme regulated by PFRDA and hence, does not involve any risk of loss.

  • Tax benefits can be availed at 10% of the scheme holder’s gross total income up to Rs. 1,50,000 under Section 80CCD of the Income Tax Act, 1961.

  • Additional Rs. 50,000 can be exempted under Section 80CCD (1B) of the Income Tax Act, 1961.

Penalties for Late Payments

In case of late contributions under the APY scheme, the following monthly penalties will be levied on the scheme holder:

  • Rs. 1 as a penalty, in case the monthly contribution is up to Rs. 100.

  • Rs. 2 as a penalty, in case the monthly contribution is between Rs. 100 to Rs. 500.

  • Rs. 5 as a penalty, in case the monthly contribution is between Rs. 500 to Rs. 1,000.

  • Rs. 10 as a penalty, in case the monthly contribution is above Rs. 1,000.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

Pradhan Mantri Vaya Vandana Yojana is a scheme launched by the Government of India and is not linked to the financial market, making it reliable and risk-free. Pradhan Mantri Vaya Vandana Yojana offers a loan, and the interest on it would be recovered from the pension sum, payable under the plan. The rate of interest under the PMVVY is approved by IRDAI before making it available to the public.

Features of Pradhan Mantri Vaya Vandana Yojana

Following are the main features of the PMVVY scheme:

  • As of the financial year 2022-2023, an assured pension of 7.40% per annum is payable monthly to the scheme holders.

  • The scheme is operated by the Life Insurance Corporation of India.

  • The minimum entry age is 60 years, whereas the maximum has no limit.

  • The policy term under the PMVVY scheme is 10 years.

  • The premium paying term can be a maximum of 10 years.

  • Premiums can be paid monthly, quarterly, semi-annually, and annually.

  • PMVVY offers a loan facility under the scheme.

  • A maximum of Rs. 1,11,000 can be availed as a pension per year under the scheme.

Advantages of Pradhan Mantri Vaya Vandana Yojana

Following are the main advantages of investing in a PMVVY scheme:

  1. Pension Payment

    Pension is payable at the termination of each period if the policyholder survives the complete policy tenure, that is 10 years.

  2. Death Benefit

    The total purchase price to credited in the beneficiary’s or nominee’s account in case the scheme-holder passes away untimely before the completion of the complete scheme tenure.

  3. Maturity Benefit

    Purchase price along with final pension installments shall be payable after the completion of the scheme’s tenure of 10 years.

  4. Surrender benefit

    Premature withdrawals are allowed only under special circumstances like treatment of critical illnesses of the scheme-holder or the spouse. The Surrender Value payable in such scenarios shall be 98% of the original Purchase Price.

  5. Loan benefits

    The loan can be availed only after the completion of 3 years of the scheme tenure. Under the PMVVY scheme, a maximum of 75% can be availed as a loan. The interest rate charged for the loan sum should be considered at periodic intervals.

  6. Tax benefits

    One can avail of the income tax benefits on prepaid premiums, and the eligible benefits would be as per the existing income tax laws.

    * Tax benefits are subjected to certain changes in the tax laws

    Minimum Pension Amount Maximum Pension Amount
    Rs. 1,000 monthly Rs. 9,250 monthly
    Rs. 3,000 quarterly Rs. 27,750 quarterly
    Rs. 6,000 half-yearly Rs. 55,500 half-yearly
    Rs. 12,000 yearly Rs. 1,11,000 yearly

Employee Pension Scheme (EPS)

Launched by the EPFO (Employee Provident Fund Organization) in the year 1995, Employee Pension Scheme primarily aims to provide financial stability to employees after their retirement. The EPFO assures that all the employees receive the pension amount once they cross the age of 58 years. 12% of the employee’s basic salary plus dearness allowance is contributed every year towards the Employee Pension Scheme.

  1. Features of Employee Pension Scheme

    Following are the main features of the EPS scheme:

    • To avail of the EPS benefits, the individual needs to be a member of EPFO.

    • For regular pension receivable, the employee needs to be 58 years old, whereas, in the case of early pension, the employee has to be a minimum of 50 years.

    • In case the employee defers pension for 2 more years, that is till 60 years of age, an additional rate of 4% per year shall be receivable.

    • There are various types of Employee Pension Schemes available like child pension, widow pension, orphan pension, etc.

    • Benefits under the EPS scheme can be availed only by employees who have served a minimum of 10 years, whether continuous or in breaks.

    • The minimum monthly pension amount receivable under the scheme is Rs. 1,000.

  2. Advantages of Employee Pension Scheme

    Following are the main advantages of investing in an EPS scheme:

    • Employee Pension Scheme offers financial security to employees working in the organized sectors.

    • If a member of EPFO becomes disabled permanently, they are eligible for a full monthly pension, irrespective of time served.

    • The employer makes a contribution of 8.33% for their employees under the scheme.

    • The application cost of the scheme has to be borne by the employer.

    • The retirement age is fixed at 58 years under this scheme.

    • In case the employee has contributed their service for more than 6 months, then the tenure will be considered as 1 year.

    • In case the employee has contributed their service for less than 6 months, then the tenure will not be taken into account.

Summing up!

There are many Government-backed pension schemes available in the market for the betterment of the citizens of India. For a stable and financially independent retirement, opting for a decent pension plan is highly recommended. Every scheme has its own advantages and disadvantages, and hence, an individual should go for the scheme that suits their requirements the best.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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