Why Atal Pension Yojana is most likely to flop

Budget 2015-16 focused heavily on ensuring that working Indians have a retirement plan and incentivised investments into pension schemes.

First, there was the Rs 50,000 additional tax benefit under Section 80CCD for contributions made to the National Pension Scheme. This benefit is for those who have already exhausted the Section 80C limit of Rs 150,000.

Then, in a big push to National Pension Scheme, Finance Minister Arun Jaitley said salaried individuals would soon have the option to switch from their de-facto retirement fund, the Employee Provident Fund.

And finally, keeping the unorganised working class and their financial security in mind, Jaitley introduced Atal Pension Yojana - where people build a retirement corpus until the age of 60 and then a monthly pension of between Rs 1,000 and Rs 5,000 is given out.

To popularise this scheme, the government has said it would co-contribute 50 per cent of the total contribution or Rs 1,000 per annum, whichever is lower, for subscribers who sign up in 2015 for 5 years. But the co-contribution by the government is only for non-income taxpayers and those who are not part of an existing social security scheme.

So in this scheme, subscribers make contributions of anywhere between Rs 100 to Rs 1,000

every month to build the corpus. This is debited from their bank account, therefore it is mandatory to have an active bank account.

Upon maturity though, unlike a regular pension scheme, there is no lump-sum portion. All the money immediately goes into giving back a monthly pension.

All those years of contributions not adding up to a big reward definitely makes the scheme unappealing. It instead slides to a monthly pension of Rs 5,000. Which brings us to the second point - if you signed up for the scheme today when you are 25, what would a monthly pension of Rs 5,000 be 35 years from now?

With these points as drawbacks, it remains to be seen if this heavily promoted scheme will gain traction within the lower income group or if it would go down the same path as RGESS.

Illustration: Uttam Ghosh/Rediff.com

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Mridhula Raghavan works as a content strategist at ClearTax.in.