Relevance: GS-2: Government Policies, Elderly, Human Resources.
Key Phrases: Atal Pension Yojana, Income Tax, New Pension Scheme, Social Security Scheme, Social Welfare.
Why in News?
- As per the latest notification of the Union Finance Ministry, Income tax payers will not be allowed to enrol in the government's social security scheme Atal Pension Yojana (APY) from October 1.
About Atal Pension Yojana:
- The government introduced APY on June 1, 2015, to provide social security to workers mainly in the unorganised sector.
- Subscribers of the scheme get a minimum guaranteed pension of ₹1,000 to ₹5,000 per month after attaining 60 years of age depending on their contributions.
- The subscribers would enjoy tax benefits on their own contributions as well as their employer’s contribution under Section 80 CCD and 80 CCE.
- Currently, all Indian citizens between the age group of 18-40 years can join APY through bank or post office branches where one has a savings bank account.
- The government co-contributed 50% of the total contribution or ₹1,000 per annum, whichever is lower, to each eligible subscriber, who joined the scheme during the period from June 2015 to March 2016.
- It was also subject to the condition that the subscriber was not a beneficiary of any social security scheme and also not an income tax payer.
- More than 99 lakh APY accounts were opened during the fiscal year 2021-22, taking the total number of subscribers to 4.01 crore at the end of March 2022.
- It forms 70% or 38.2 million out of the 54.3 million total subscriber base under the fold of the National Pension System (NPS).
- The remaining 30% includes subscribers from the central government sector, state government, and corporate sector and individuals.
What are the changes that have been made in the APY?
- According to the Union Finance Ministry, from 1st October, 2022, any citizen who is or has been an income tax payer, shall not be eligible to join APY.
- However, it will not apply to subscribers who have joined or join the scheme before October 1, 2022.
- In case a subscriber, who join on or after October 1, 2022, is subsequently found to have been an income tax payer on or before the date of application, the APY account shall be closed and the accumulated pension wealth till date would be given to the subscriber.
Why have the changes been proposed?
- The changes have been made to restrict the scope of beneficiaries as part of the government’s efforts to better target welfare measures to the needy.
- The government’s effort in recent years has been to disallow the economically well-off from welfare schemes so that funds reach intended beneficiaries more effectively.
- Such measures have also been a suggestion given by the Fifteenth Finance Commission
About the old Pension System?
- Until 2004, pension schemes for government employees were managed on ‘defined benefit’ principles, or in other words, that they had fixed pension benefits which were calculated in the basis of their last drawn salary, years of service etc., and were in addition ‘cost-indexed’ at current rates.
- This system was transformed from ‘defined benefit’ to ‘defined contribution’ schemes. This means pension benefits are directly linked to individual pension accounts, to which both employers and employees contribute during the term of employment. The quantum of benefit is however variable and dependent on the performance of the fund.
- Central government employees (except armed forces) who came into employment after 2004 have been mandatorily enrolled in the NPS.
- The state governments have also subsequently transitioned their pension systems to NPS as well. The NPS, and Atal Pension Yojana are open to the non-government subscribers as well, but it is not mandatory for them and is one among several investment options for them.
What is National Pension System (NPS)?
- It is a voluntary, defined contribution retirement savings scheme designed to enable the subscribers to make optimum decisions regarding their future through systematic savings during their working life.
- NPS seeks to inculcate the habit of saving for retirement amongst the citizens. It is an attempt towards finding a sustainable solution to the problem of providing adequate retirement income to every citizen of India.
- Under NPS, individual savings are pooled in to a pension fund which are invested by PFRDA (Pension Fund Regulatory & Development Authority) regulated professional fund managers as per the approved investment guidelines in to the diversified portfolios comprising of Government Bonds, Bills, Corporate Debentures and Shares. These contributions would grow and accumulate over the years, depending on the returns earned on the investment made.
- At the time of normal exit from NPS, the subscribers may use the accumulated pension wealth under the scheme to purchase a life annuity from a PFRDA empanelled Life Insurance Company apart from withdrawing a part of the accumulated pension wealth as lump-sum, if they choose so.
Source: The Hindu
Mains Question:
Q. Critically evaluate the Atal Pension Yojana in the light of the Government’s recent efforts to limit welfare activities to only needy citizens.
