Regular post-retirement income | Additional tax benefit on investments up to ₹50,000 u/s 80CCD (1B) - EEE Category | Regulated by PFRDA (Pension fund regulator under Ministry of Finance, Govt. of India) invest now

A steady income stream is key to a stress-free retirement. It covers everyday expenses, including medical costs. Your savings will come in handy when you don't have a regular paycheck. Plan your future by investing in an early savings fund.

 

When considering your retirement, it is essential to compare the benefits of the National Pension System (NPS) vs Atal Pension Yojana (APY). These are government-backed pension schemes regulated by the PFRDA and offer tax benefits. Despite these similarities, there are many key differences between the two.

Key Difference Between NPS and APY

Before deciding on a scheme, gain insight into these two government pension options: 

Parameters

National Pension System 

Atal Pension Yojana 

Joining Age

18-70 years

18-40 years

Eligible Subscribers 

Resident and Non-resident Indians (NRIs)

Resident Indians (Excluding income taxpayers)

Account Types

Tier I (Mandatory), Tier II (Voluntary)

Single Standard Account

Investment Flexibility

Active Choice (Choose Assets) or Auto Choice (Life cycle Funds)

Limited flexibility, managed by government investment patterns

Pension Slab

Market-linked (Variable)

Fixed Slabs (₹1,000 - ₹5,000)

Contribution Amount

Minimum ₹1,000/year (Tier I), No Maximum

Contribution based on Pension Slab Selected

Government Contribution

No

Yes (Subject to Terms)

Account Number

Permanent Retirement Account Number (PRAN)

No Permanent Account Number

Premature Withdrawal Rules

Unlimited for Tier II, Partial for Tier I (With conditions)

None

Impact of Market Changes

Affected by debt and equity markets

Not market-linked (Guaranteed returns)

Returns and Payout

Dependent on contribution and asset performance

Fixed and guaranteed by Government

Pension Guarantee

No guaranteed amount

Guaranteed pension amount

Which Retirement Scheme Is Better

Given the differences between NPS and APY, the best scheme depends on your risk tolerance. Choose based on your financial goals. It also depends on your expected pension amount. Here's a look at the estimated returns for both options.

Returns Under the Atal Pension Yojana

The Atal Pension Yojana ensures a stable retirement income. It offers a guaranteed pension amount. You choose a pension slab between ₹1,000 and ₹5,000 and make a fixed contribution, which is based on your age. The returns you will receive depend upon your contribution. 

 

For instance, if you have opted for a monthly pension of ₹1,000, then the contribution to the scheme will be as follows:

 

Here’s an overview to help you understand APY returns:

Joining Age

No. of Contributing Years

Indicative Contribution/Month (₹)

Monthly Pension Amount (₹)

Indicative Corpus Paid to Nominee (₹)

18

42

42

1,000

1.7 Lakhs

20

40

50

1,000

1.7 Lakhs

25

35

76

1,000

1.7 Lakhs

30

30

116

1,000

1.7 Lakhs

35

25

181

1,000

1.7 Lakhs

Your ₹1,000 monthly pension is guaranteed. You can earn more if the fund achieves higher returns. For instance, APY has offered the following return benchmark rates in recent times:

1-year Return Rate

2-year Return Rate

3-year Return Rate

5-year Return Rate

10-year Return Rate

4.73%

9.59%

8.41%

8.72%

NA

Disclaimer: Benchmark rates released by the NPS Trust as on 24/06/2024. 

Returns Under the National Pension Scheme

NPS operates on market-based returns, which are not fixed or guaranteed. Your returns depend on the Net Asset Value (NAV) of your chosen investment. An equity-heavy NPS portfolio could yield better returns. A conservative, debt-heavy portfolio may offer more stability.

 

Here’s an overview of the latest NPS return rates: - 

Tier I Scheme/Asset Class

1-Year Return

5-Year Return

10-Year Return 

Scheme ‘E’ (Equity)

40.61%

18.21%

14.32%

Scheme ‘C’ (Corporate Bonds)

11.45%

8.69%

9.65%

Scheme ‘G’ (Government Bonds)

9.06%

7.41%

9.62%

Scheme ‘A’ (Alternative Assets)

12.53%

9.13%

N/A

Disclaimer: Based on data released by the NPS Trust on benchmark rates as on 26/06/2024. 

Choosing the Right Retirement Plan: NPS or APY?

When comparing NPS vs APY, it’s important to consider your risk tolerance, investment strategy, and returns. NPS may offer higher returns due to its link with market performance. Strong markets can lead to higher-than-average returns and a larger retirement corpus. However, weak markets can also impact your NPS fund. Diversification within NPS may help manage this risk.

 

APY caters to risk-averse investors by offering fixed returns independent of market fluctuations. This ensures a stable pension amount, even if the scheme's overall returns fall short. The government will contribute funds toward the scheme's deficiency.

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