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National Pension System vs Atal Pension Yojana: Detailed Difference between NPS & APY; Which is Better?

“Pension” is a safe gourd and must option for every individual who wants to spend his/her after retirement days in a more secure way. Moreover, the government and several private companies offer pension schemes and the most tough task is to choose the right one.

Pronami Chetia
Pension Scheme
Atal Pension Yojana

“Pension” is a safe gourd and must option for every individual who wants to spend his/her after retirement days in a more secure way.

Moreover, the government and several private companies offer pension schemes and the most tough task is to choose the right one. Although there are many pension schemes, it’s hard to find the right one. Moreover, there are two hugely popular pension schemes are -- National Pension System (NPS) and Atal Pension Yojana (APY). Both are government-run schemes and promise maximum benefits.

NPS was first launched in 2004 by the Atal Bihari Vajpayee government while APY was introduced by the Modi government in 2015 that focuses mainly on the unorganized sector.

As per reports, those contributing to the APY and NPS can avail additional tax benefit under section 80 CCC and 80CCD. Let's understand the difference here:

What is Atal Pension Yojana?

Notably, the APY is a guaranteed pension scheme of the Central government which offers triple benefits to the subscriber, on attaining 60 years of age.  

The APY benefits include minimum guaranteed pension to the subscriber, same guaranteed pension to the spouse after the demise of subscriber and return of the accumulated pension wealth till age 60 of the subscriber to the nominee.  

“More than 40 lakh new subscribers are enrolled under APY during the financial year 2020-21 (April 1, 2020 to November 13, 2020),” the PFRDA said. 

Highlights of Atal Pension Yojana:

Under the APY, there is guaranteed minimum monthly pension for the subscribers ranging between Rs. 1000 and Rs. 5000 per month. 

The benefit of minimum pension would be guaranteed by the GoI.

GoI will also co-contribute 50% of the subscriber’s contribution or Rs. 1000 per annum, whichever is lower. Government co-contribution is available for those who are not covered by any Statutory Social Security Schemes and is not income tax payer.

GoI will co-contribute to each eligible subscriber, for a period of 5 years who joins the scheme between the period 1st June, 2015 to 31st December, 2015. The benefit of five years of government Co-contribution under APY would not exceed 5 years for all subscribers including migrated Swavalamban beneficiaries.

All bank account holders may join APY.

What is National Pension Scheme (NPS)?

National Pension Scheme (NPS), a government-sponsored pension scheme, was launched in January 2004 for government employees. It was opened to all sections in 2009. A subscriber can contribute regularly in a pension account during her working life, withdraw a part of the corpus in a lumpsum and use the remaining corpus to buy an annuity to secure a regular income after retirement.

Who can join NPS?›

Any Indian citizen between 18 and 60 years can join NPS. The only condition is that the person must comply with know your customer (KYC) norms.

Eligibility: NPS vs APY

One must be at least 18 years at the time of enrollment in these two schemes. In the NPS, the maximum enrollment age is 55 years. In the APY, the maximum age to apply for the scheme is 40 years.

According to Rajan Pathak, co-founder of Fintso and a license holder investment advisor, both schemes have a different target audience and hence have different features and benefits.

The government started Atal Pension Yojana for unorganised sector people. The government contributes towards the APY accounts. He said that APY is a great initiative and scheme for those who are uncertain about their income and financial social welfare after retirement. But the APY has no option to manage the fund as this is a "government guaranteed scheme".


In APY, if an 18-year-old joins the scheme and starts depositing Rs 210 every month for the next 42 years (till he turns 60), he will be eligible for a monthly pension of Rs 5,000 (fixed). The return is pre-defined at the time of subscription. This is not the case with the NPS where every year additional return matters a lot after 25-30 years.

Another difference is the minimum contribution. In the NPS, the government has set a Rs 500 minimum contribution limit. In the APY, the government offers three modes of contribution i.e. monthly, quarterly, and half-yearly. An individual is required to pay a minimum of Rs 42 every month to get a minimum guaranteed benefit of Rs 1000.

Which One has More Benefits?

There is a huge potential in the equity market and the NPS attracts more salaried class people than APY which attracts people from the unorganized sector.

In the NPS, a subscriber can diversify the investment. But he/she can't invest in only inequities. They are required to invest in other asset classes also like government bonds, corporate debt, and others.

"You can park money in a faster growth path and later change the gear with the highest safety," he said, adding that you are allowed to invest up to 75% in equity and then move to 100% corporate debt or 100% debt schemes. This is not the same in the APY where returns are pre-defined. The returns range between Rs 5000 and Rs 1000. Since the NPS is linked to equities, the returns depend on various factors like market movement, said official.

"Last 5 years performance of NPS schemes warry from 11% to 13% with tax benefits, it is really a great return in a longer time. An important part of any investment is that it should beat inflation with sufficient margin so annuity and lumpsum should have a positive value in hand after a long period," he said.

Premature withdrawal

Another difference is regarding premature withdrawal. There is no provision for premature withdrawal in the APY. This means, if a subscriber changes his mind after staying five years in the scheme, he/she cannot withdraw the money before the term ends. But, if the subscriber dies, or has a medical condition, the government gives an option to withdraw the amount.

In the NPS, only Tier 2 accounts are allowed for premature withdrawals.

Source: India TV

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