NOTES
Atal Pension Yojana
A Critical Appraisal
Sant Lal Arora, Amitabh Kundu
The Atal Pension Yojana—an
old-age pension scheme for
informal sector workers—is
a major initiative to ensure
fixed monthly pension for the
elderly. This is guaranteed by
the government through the
provisioning of assured rates of
interest during the accumulation
and distribution period. An
analysis of the benefit patterns
and recommendations to make
the scheme more attractive for
the informal sector workers
is presented.
Sant Lal Arora (santlal11@yahoo.co.in) is a
senior fellow at the Indian Council of Social
Science Research and honorary fellow at the
Institute for Human Development, Delhi.
Amitabh Kundu (akundu.jnu@gmail.com) is a
senior fellow at Delhi Policy Group, Delhi.
Economic & Political Weekly EPW MAY 12, 2018
T
he share of informal workers in
total employment in India varies
between 80% and 90% depend-
ing on the coverage and methodology of
estimation. Living conditions of a majority
of the elderly population who are working
or have worked in this sector are a matter
of serious policy concern. What is more
important is that the share and numbers
of the elderly in the population is increas-
ing at a high rate. Unfortunately, most of
the pension schemes or funds for old age
in India are for the workers in the formal
sector, or a small segment of professionals
who can subscribe to self-funded schemes.
The Atal Pension Yojana (APY), initiated
in 2015 and administered by the Pension
Fund Regulatory and Development
Authority (PFRDA), is a major initiative
of the present government. It is a specifi-
cally designed model of the National
Pension System (NPS) to bring the NPS
within easy reach of the economically dis-
advantaged sections of the society.
There are a few other schemes such
as the Indira Gandhi National Old Age
Pension Scheme (IGNOAPS), the Public
Provident Fund (PPF), and Unit Trust of
India (UTI) Retirement Benefit Pension
(RBP), through which informal workers
can access financial support in their old
age. These schemes, however, have their
limitations and are restricted in terms of
coverage. The IGNOAPS provides for a
small amount of pension and does not
reach the intended beneficiaries due
to the inadequacies in the distribution
system. For the PPF, the funds can easily
be diverted and the term of deposit
(15 years) is too short for younger work-
ers. The UTI RBP is relatively new and
has encountered regulatory challenges.
It is difficult to assess whether clients
will continue contributing to it in the
future. Any option to withdraw all or most
of the money before retirement can
vol lIiI no 19
undermine the scheme’s usefulness for
old age as immediate needs take prece-
dence (Mukherjee and Piggot 2013).
In this article, we focus on the APY.
It begins with an overview of its
characteristics, analyses aspects of cost-
effectiveness and sustainability, and goes
on to propose a few changes to make it
more attractive and beneficial for the in-
formal sector workers than the other
available options. The proposed modifi-
cations are expected to lead to an in-
crease in the coverage under the scheme.
National Pension System
The NPS was initiated with the intention
to reduce unfunded, defined benefit
liabilities of civil services on the one
hand, and to expand the coverage of
old-age income security to the informal
workers on the other. It started from
1 January 2004 for central government
employees, except for the armed forces.
In May 2009, it was started for the pri-
vate sector, including the informal sector
on a voluntary basis.
With an objective to increase the
coverage for informal workers, Swav-
alamban Scheme, a specifically designed
model of the NPS, was introduced in the
Union Budget 2010–11 to bring the NPS
within easy reach of the economically
disadvantaged population. The scheme
was available for persons who join this
scheme, with a minimum contribution
of `1,000 and a maximum contribution
of `12,000 per annum during 2010–11.
Under this scheme, the central govern-
ment contributed `1,000 per year for
three years to each NPS account opened
in 2010–11. This scheme was initially
planned to run till 2013–14, but was later
extended till 2016–17. Certain norms
were relaxed allowing for exit at the
age of 50 years instead of 60 years, or a
minimum tenure of 20 years, whichever
occurs later.
Contributions under the Swavalamban
Scheme were managed by the three pen-
sion funds that managed contributions of
government employees and were regis-
tered with the PFRDA in April 2012. These
are: (i) Life Insurance Corporation (LIC)
Pension Funds; (ii) State Bank of India
57
NOTES

(SBI) Pension Funds; and (iii) UTI Retire- Government’s share: The government the government. On the other hand,
ment Solutions (PFRDA 2016). Based on co-contributes 50% of the subscriber if the actual returns on the pension
the feedback received by the PFRDA contribution in a year or `1,000 per contributions are higher than the as-
from the implementing agencies, it was annum, whichever is lower for those sumed returns for minimum guaranteed
observed, who have joined this scheme before 31 pension, over the period of contribution,
March 2016. This contribution is for a such excess shall be credited to the sub-
The low take up of the Swavalamban
Scheme was attributed partly to its returns period of five years. The government’s scriber’s account, resulting in enhanced
being completely market dependent. Sub- co-contribution is payable into the sub- scheme benefits to the subscribers
scribers from lower strata of income to whom scriber’s savings account at the end of (PFRDA 2015).
the scheme was targeted always wanted some the financial year once the subscriber
assurance about certain minimum returns.
has made the entire contribution for the Account closure: Exiting the scheme
(Vats 2016)
year (PFRDA 2015). before 60 years of age is generally not
As per the Department of Financial Taxpayers and those covered under permitted, except in circumstances such
Services, Ministry of Finance, “the cov- any “statutory social security scheme” can as death of the beneficiary or a terminal
erage under the Swavalamban Scheme also become members of the scheme, ailment. If exempted, there is a provi-
was inadequate due to non-clarity of but would not get the government sion for giving the government’s contri-
pension benefits at the age of 60 years.”1 contribution. If a beneficiary becomes a bution to the nominee of the subscriber.
Keeping this in view, the finance minister taxpayer at a later stage, they would Otherwise they shall only be refunded
announced the APY in the Union Budget continue to be members of the scheme, the contributions made by the person,
2015–16. The APY provides a defined but will not get the government contri- along with the net actual interest earned
pension depending on the contribution bution. There is ambiguity here. It is on these contributions (after deducting
amount and its period. not clear whether persons who are the account maintenance charges). The
members of schemes like the Employees’ government’s co-contribution, and the
Atal Pension Yojana State Insurance Scheme that have no interest earned on this, shall not be given
Some important highlights of the APY provision for old-age income security to such subscribers (PFRDA 2015).
are as follows (PFRDA 2015). are covered. It only specifies that the According to the new amendment,
beneficiaries of social security schemes contributions can continue to be made
Membership: Any citizen of India in the that came into existence through cer- by the spouse of the subscriber for the
age group of 18–40 years with a savings tain listed enactments would not be remaining vesting period (that is, until
account can join the scheme. eligible to receive the government’s the subscriber would have attained the
co-contribution. age of 60 years), and receive the same
Contribution: Monthly instalments to Besides this, the government reim- pension from that date. The nominee
be paid by the subscribers are given in burses the promotional and development has been allowed to receive a pension
Table 1. If they want to get a pension of activities, including incentives to the con- instead of a lump sum amount.
`2,000 they will have to pay double the tribution collection agencies to encourage
instalment. Similarly, if they want to get people to join the APY. Administration of the scheme: It is
a pension of `3,000, `4,000 or `5,000, a central government scheme, which
they will have to pay three, four, and five Nomination: The nominees of the per- is administered by the PFRDA. The insti-
times the instalments, respectively. sons contributing for getting a monthly tutional architecture of the NPS would
Table 1: Monthly Instalment at Various Ages pension of `1,000 would get `1.7 lakh be utilised to enrol subscribers under
of Entry and Vesting Periods during the after the person’s death. Similarly, those the APY. All points of presence (service
Accumulation Period for Getting a Pension of
`1,000 per Month who contribute to get monthly pensions providers), including some state govern-
Age at Vesting Monthly Age at Vesting Monthly of `2,000, `3,000, `4,000 and `5,000 ment entities, public sector banks, re-
Entry Period Instalment Entry Period Instalment
(years) (` ) (years) (`) would entitle their nominees to receive gional rural banks, microfinance institu-
18 42 42 30 30 116 `3.4 lakh (that is, two times `1.7 lakh), `5.1 tions (MFIs), non-banking financial com-
19 41 46 31 29 126 lakh (three times `1.7 lakh), `6.8 lakh panies (NBFCs), and private sector enti-
20 40 50 32 28 138 (four times `1.7 lakh), and `8.5 lakh ties, enrol subscribers.
21 39 54 33 27 151 (five times `1.7 lakh), respectively after
22 38 59 34 26 165 their death. Regularity of payment: The contribu-
23 37 64 35 25 181
The benefit of minimum pension tions are supposed to be made on a
24 36 70 36 24 198
under the APY would be guaranteed by monthly basis, but the subscribers can
25 35 76 37 23 218
the government in the sense that if the also contribute quarterly and biannually
26 34 82 38 22 240
27 33 90 39 21 264
actual realised returns on the pension (Economic Times 2015). The penalty on
28 32 97 40 20 291 contributions are less than the assumed delayed payment is `1 per month for a
29 31 106 returns, for minimum guaranteed pen- contribution of `100. If beneficiaries do
Source: PFRDA (2014). sion, the shortfall shall be funded by not pay monthly contributions regularly,
58 MAY 12, 2018 vol lIiI no 19 EPW Economic & Political Weekly

they would not get the government con-
tribution for that year.
Cost-effectiveness
The cost-effectiveness of the scheme can
be obtained by calculating the interest
rates received by the beneficiaries to get
a monthly pension of `1,000, `2,000,
and so on. These rates can be calculated
separately for the accumulation period
(before retirement) and the withdrawal
period (after retirement).
During accumulation period: Given
that the government’s contribution is
not available to the subscribers who join
after 31 March 2016, their interest rates
during the accumulation period would
work out to be lower than those joining
before that date. Keeping this in view,
rates have been calculated for both
types of subscribers.
Joined before 31 March 2016: Interest
rates have been calculated taking four
extreme cases, two corner points of
entry, 18 years and 40 years, and the
lowest and highest monthly pension
amounts, `1,000 and `5,000 (Table 2).
A subscriber, who joins at the age of 18
and contributes with the aim of getting a
monthly pension of `1,000 (that is, the
nominee gets a corpus amount of `1.7
lakh), would pay only 50% of the monthly
subscription of `42 per month (that is,
`21 per month). They would, thus, re-
ceive `252 per year for the first five
years, and not `1,000 per year, which is
the upper limit.
For the remaining 37 years, they would
contribute `42 per month. However, if
Table 2: Interest Rates during Accumulation Period
Corpus Amount Age at Total Vesting
(`) Entry Period
(Years) (Years)
(1) (2) (3)
1.7 lakh 18 42
40 20
8.5 lakh 18 42
40 20
Calculator: http://www.allbankingsolutions.com/Recurring-Deposit-Calculator-India.shtml.
Economic & Political Weekly EPW MAY 12, 2018
they join at the age of 40 years, the gov-
ernment’s co-contribution will be `1,000
per year (that is, `83 per month), which
is still less than 50% of the beneficiary
contribution. They would be paying
`208 per month instead of `291 during
the first five years, and `291 per month
for the remaining 15 years (Table 2, col 4).
Similarly, a subscriber joining at the
age of 18 and planning to get a monthly
pension of `5,000 (corpus amount `8.5
lakh), would pay a monthly subscription
of `127 per month during the first five
years and `210 per month during the
remaining 37 years. Similarly, persons
joining at the age of 40 for a monthly
pension of `5,000 would pay a monthly
subscription of `1,372 during the first
five years, and `1,455 during the remaining
15 years (Table 2, col 4).
Given the amounts of the instalments,
investment periods and accumulated
amounts, the interest rates can be worked
out using the interest rate calculator.
These rates have been calculated on a
quarterly basis, the normal practice in
banks. Table 2 shows that a person who
joins the APY before 31 March 2016 and
goes for a pension of `1,000 per month
would get interest rates of 8.6% and 9%
for the two different entry points of 18
years and 40 years, respectively. However,
if they opt for a pension of `5,000 per
month, they would receive the interest
rates of 8.46%, and 8.12%, respectively,
for the two different entry points. This
means that these subscribers get interest
rates in the range of 8.1% to 9% during
the accumulation period. No rationale has
been provided for the wide variation in
the rates depending on the age of entry.
Monthly Instalment Rate of Interest per Annum (%)
(Joined before
31 March 2016)
(4) (5)
(i) First 5 years = `21
(that is, `42/2)
(ii) Remaining 37 years = `42 8.60
(i) First 5 years = `208
(that is, `291– `1,000/12)
(ii) Remaining 15 years = `291 9.0
(i) First 5 years = `127
(that is, `210– `1,000/12)
(ii) Remaining 37 years = `210 8.46
(i) First 5 years = `1,372
(that is, `1,455– `1,000/12)
(ii) Remaining 15 years = `1,455 8.12
vol lIiI no 19
NOTES
Joined after 31 March 2016: The sub-
scribers who joined this scheme after
31 March 2016 would get a lower rate of
interest during the accumulation phase
since they are not entitled to the gov-
ernment’s contribution (Table 2, col 6).
These rates are in the range of 7.93% to
7.97%, which is low. This means that
the corpus amounts for the subscribers
who joined the APY after 31 March 2016
have been fixed in such a way that, on
an average, beneficiaries get an interest
rate of about 8%.
After 60 Years of Age
The rate of interest the beneficiary gets
during their lifetime after 60 years of
age works out to be lower than that
received during the period of accumula-
tion. With an accumulated amount of
`1.7 lakh, the formula to compute the
rate of interest for a monthly pension of
`1,000 would be
r = (i*100)/(p*t)
where, r is rate of interest per annum, i is
the monthly interest, p is principal amount
(accumulated amount), and t is one-
month period.
Therefore r = (1000*12*100)/170000 =
7.1% per annum.
The rate of interest would be the same
for a corpus of `1.7 lakh, `3.4 lakh, `5.1
lakh, `6.8 lakh or `8.5 lakh, because,
proportionally, the subscribers get a higher
monthly pension amount. Hence, the rate
of interest during the withdrawal period
is less than that of the accumulation
period. In fact, the rate would work out
to be even less, since the total yearly
payment of `12,000 is spread over a
period of 12 months.
(Joined after Suggested Changes
31 March 2016)
(6) It is important to note that the scheme is
a major instrument for the generation of
savings for the government. This pool of
7.97
savings can be used by the government
in funding long-term projects. Also, this
7.93 would reduce government expenditure
on health of the elderly as their quality
of life will improve. There is a strong
7.97
case for giving higher benefits under
such schemes to workers in the unorgan-
7.94 ised sector since the government has
failed in providing minimum wages and
59
NOTES
social security to them even after seven
decades of independence.
There are different ways by which the
scheme can be made more attractive for
the subscribers. This would help increase
its coverage. First, although the govern-
ment makes a long-term commitment of
providing a fixed rate of interest, these
are low and vary with the age of entry
and planned pension amount. The rate
is as low as 7.1% during the withdrawal
period. This is lower than the interest
being paid to senior citizens under the
Senior Citizen Savings Scheme (SCSS), that
is, 8.5% per annum. Taxpayers and those
who have retired from senior-level posts
in the organised sector are also eligible
for the SCSS. The rate of interest given to
members of the Employees’ Provident
Fund was 8.65% in 2016–17. The Union
Budget 2016–17 proposed a scheme that
offers an annual rate of return of 8% for
10 years to senior citizens.
The weighted average returns under
the NPS of the central government pension
funds (9.1% during April 2008 to March
60
2013) and state government funds (8.6%
during June 2009 to March 2013) are
also higher than the interest rates being
given under the APY (PFRDA 2014). It is,
therefore, proposed that the assured
rate of interest under the scheme should
be increased to at least 8.5% for all sub-
scribers during accumulation as well as
distribution periods. There should not
be any difference in the interest rates for
different groups of subscribers.
Second, government co-contribution
benefits given for five years to subscrib-
ers who have joined before 31 March
2016 may be extended to those joining
after this date.
Third, keeping in mind that inflation
averaged 7.45% per annum from 2012 to
2016, one can make a strong case for
increasing the rate of interest. Also, the
pension amount may be adjusted to the
rate of inflation through indexation.
Fourth, even some beneficiaries who
have joined before 31 March 2016 are
not going to get the full benefit of the
government contribution of `5,000 (at
MAY 12, 2018
the rate of `1,000 per year) for the first
five years. These are:
(i) Persons opting for premature closure
of their account.
(ii) Those who opt for a low pension
amount at an early age of entry get low
contribution from the government.
For example, a person at the age of 18,
joining before 31 March 2016, will be
paying `504 (at the rate of `42 per
month) as total instalment amount in
the first year, but will get only `252 as
government contribution. Even if they
opt for a monthly pension of `2,000 or
`3,000, the government contribution
will be less than `5,000 for the first
five years. Also, the persons in the age
group of 18–34 years who are opting
for a pension of `1,000 would not
get the total government contribution
of `5,000. Only those who are in the
age group of 35–40 years would get the
full `5,000.
For encouraging participation of all
informal workers in the APY, it would be
important to do away with such variations.
vol lIiI no 19 EPW Economic & Political Weekly

Fifth, persons above 40 years of age
are not eligible to become members of
the APY. The share of the working popu-
lation in the age group of 40–59 years is
more than 30% as per the 2011 Census.
Interestingly three quarters of the exist-
ing subscribers of the APY have joined in
the age group of 30–40 years. The pension
fund regulator is also pressing the govern-
ment for increasing the age limit for
being eligible for this scheme (Business
Standard 2017a). Some arrangement
should be made to cover at least the per-
sons who are in the age group of 40–50
years. In such cases, pension amounts
post 60 years of age may be less, fixed at
`1,000 or `2,000 per month.
Sixth, large numbers of informal workers
are below the poverty line and cannot
pay the instalment. About 28% of informal
sector workers were found to be poor, as
estimated by using the Tendulkar poverty
line. As per the International Labour
Organization’s Social Protection Floors
Recommendation 2012 (No 202), for
which India is a signatory, each country
should provide basic social security
guarantee on a universal basis to every
individual (ILO 2014). It is important to
bring such persons within the scheme
who are unable to pay the instalments.
The contribution of such persons may
come from other schemes of central or
state governments.
The respective state governments may
also co-contribute additional amounts in
the scheme along with the subscribers’
regular contribution. This contribution by
state governments will enable enhanced
pension to the subscribers at the age of
60 years. Some states (namely, Andhra
Pradesh, Gujarat, and Himachal Pradesh)
have already notified the APY and are
also co-contributing between `500 and
`1,000 per annum for the eligible sub-
scribers of the state (PFRDA 2015).
PFRDA Chairman Hemant G Contractor
pointed out that the government is con-
sidering a proposal to include some sectors
of the economy into “soft compulsion”
pension schemes to widen the social
security net in India (Business Standard
2017b). This is important as state govern-
ments may also encourage the employers
of informal sector enterprises for auto
enrolment of their workers under the APY.
Economic & Political Weekly EPW MAY 12, 2018
NOTES
The enterprises that can afford to pay the Applying this trend, the life expectancy
contribution of their employees should at the age of 60 years works out to be 20
do so and, for this, state governments may years. However, in rural areas, this hap-
give tax incentives to the employers, if pens to be less than that in urban areas.
necessary. This will bring larger numbers Furthermore, information on life expec-
of informal workers under the pension tancy of informal workers is not available.
system who are not currently subscri- It can, nonetheless, be argued that it would
bing owing to the voluntary nature of also be lower than 17.9 for 2002–06, and
the scheme. may reach close to 18 years only after a
Lastly, in order to increase the pen- period of 20 years. Given the survival
sion amount, an option may be given to rates, the average number of years of
the subscriber to utilise the accumulated survival of one among the couple at the
money during their lifetime and not leave age of 60, would be 18 years only.
anything for the nominee. There already The revised pension amount that
exists the Pradhan Mantri Jeevan Jyoti would accrue to the subscriber, in case
Bima Yojana in which a person has to de- of having only the spouse as a nominee
posit `330 per annum and his nominee to get the pension amount during life-
can get `2 lakh after their death due to time is given in Table 4. It may be noted
any reason. In the APY, the person may that the amount jumps up from `1,000
be allowed to have their spouse as a to `1,487. Similarly, pension of `2,000,
nominee, but not their children as the `3,000, and so on would increase by the
chances of the latter being dependent on same proportion. On an average, the
the parent is low. Also, they may give only revised pension would be about one and
a part of the accumulated amount to the half times the original amount.
nominee and convert the remaining The APY is an important initiative to
amount into an additional monthly pen- ensure a fixed monthly pension for the
sion. The revised pension amount for a informal sector workers. Its financial
subscriber who opts for the spouse to be sustainability and its goal to bring a large
the nominee and would like to get the number of informal sector workers under
pension amount till either of them is its ambit needs to be strengthened further.
alive, would get an additional 50%, as
shown in the calculations in Table 4. note
If we look at the life expectancy in 1 http://financialservices.gov.in/pension-reforms-
divisions/Swavalamban-Scheme.
India at the age of 60 years, it has
increased from 15.4 years during 1981–85 References
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Exposure to Equity Shortly: PFRDA,” 9 March.
Table 3: Life Expectancy at 60 Years of Age by
— (2017b): “Government Mulls PFRDA’s Soft Com-
Sex and Residence
pulsion Pension Plans,” 16 March.
Period Total Male Female Rural Urban
Economic Times (2015): “Government Simplifies
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1986–90 15.4 14.7 16.1 15.3 16.2 Yojana,” 24 August.
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1996–2000 16.9 15.8 17.8 16.5 18.6
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2002–06 17.9 16.7 18.9 17.6 19.7 ing Economic Recovery, Inclusive Development
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Accumulated Pension per Month Pension per Month Regulatory and Development Authority, Delhi.
Money with Nominee without Nominee — (2015): Pension Bulletin, Vol IV, Issue VI,
(` ) Amount (` ) Amount (` ) Pension Fund Regulatory and Development
1,70,000 1,000 1,487 Authority, Delhi.
— (2016): Pension Bulletin, Vol V, Issue VI, Pen-
3,40,000 2,000 2,974 (1487*2) sion Fund Regulatory and Development Au-
5,10,000 3,000 4,462 (1487*3) thority, Delhi.
6,80,000 4,000 5,948 (1487*4) Vats, A (2016): “Extending Pension Coverage to
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8,50,000 5,000 7,435 (1487*5) Issue IV, Volume V, Pension Fund Regulatory
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vol lIiI no 19 61