National Pension Scheme (NPS) Vs. Atal Pension Yojana (APY)

This article compares National Pension Scheme (NPS) with Atal Pension Yojana (APY).

Retirement is a phase of life when you don’t work actively and as a result, you do not have a regular source of income. But even at this stage of your life, you have to meet your basic and medical expenses. It is important for every individual to create their retirement corpus while they are still working. There are several types of investment schemes and policies through which you can support and meet your post-retirement expenses. Two such schemes introduced by the government are National Pension Scheme (NPS) and Atal Pension Yojana (APY). Both schemes aim to support individuals post-retirement.

National Pension Scheme (NPS)

NPS is a pension scheme launched by the government of India as a social security initiative. NPS is a voluntary retirement scheme and is also one of the cheapest long-term investment plans for retirement under the purview of the Pension Fund Regulatory and Development Authority (PFRDA). Under NPS, an individual must contribute a certain amount regularly in a pension account during their working life. NPS offers market-linked returns as it depends on financial markets. One can invest in NPS till they are 65 years of age. On maturity, the account holder can withdraw 60% of the total investment in a lump sum, and the balance of 40% of the invested amount is used up to pay annuities (pension) throughout the life of the account holder.

Atal Pension Yojana (APY)

APY is a retirement scheme launched by the government of India, aimed at providing guaranteed pensions to low-income group individuals in the unorganized sector. The age of the subscriber to the scheme should be between 18-40 years. Under APY, minimum pensions of Rs. 1,000 or Rs. 2,000 or Rs. 3,000 or Rs. 4,000 or Rs. 5,000 per month is given on attaining the age of 60 years depending on the contributions made by the subscribers. When you invest in this scheme, you need to choose the pension amount needed by you, post-retirement. On the basis of your age, the pension amount is chosen and frequency of contribution, the amount which is needed to be contributed by you is calculated. On maturity, the undertaken pension amount is paid throughout your and your spouse’s lifetime.

Similarities between NPS & APY

Both NPS and APY, being retirement schemes launched by the government of India have certain similarities:

  • The aim of both the scheme is to help individuals to cope up with their post-retirement expenses. Thus, both schemes are retirement-oriented which helps to create a retirement corpus for individuals.
  • Both the schemes come under the purview of and are managed by the Pension Fund Regulatory and Development Authority (PFRDA).
  • Both schemes provide a fixed amount of pension throughout the life of the individual opting for this scheme once the scheme matures.
  • Both schemes provide tax benefits. Under Section 80CCD(1) of the IT Act,1961, a maximum deduction of Rs. 1.5 lakhs are allowed on contribution to both the schemes. Additionally, a further deduction of Rs. 50,000 can be claimed under Section 80CCD(1B) on contribution to both schemes.
  • The periodic pension received by individuals post-retirement under both the schemes is taxable as per the slab rates of the individuals.

Differences between NPS & APY

Basis National Pension Scheme (NPS) Atal Pension Yojana (APY)

Eligibility      Criteria 

To subscribe for NPS, individual should age between 18-65 years. Both Indian residents and NRIs are eligible. To subscribe for APY, individual should be aged between 18-40 years. Only resident Indians are eligible.

Pension Payable

Under NPS, pension payable depends on the contributions made and the growth achieved from market-linked investments. APY is a defined pension scheme, as pension is fixed beforehand. The pension can be chosen to be between Rs. 1,000-5,000 (in multiples of 1000).

Tax Benefits

Contributions made under NPS are allowed as a deduction under Section 80 CCD(1), 80CCD(1B), and 80CCD(2). Pensions paid are taxable in the hands of the investor. Contributions made under APY are allowed as a deduction under Section 80 CCD(1) and 80CCD(1B). Pensions paid are taxable in the hands of the investor.

Types of Accounts

Under NPS, there are two types of accounts i.e., Tier I Account and Tier II Account. Under the APY scheme, there is only one type of account.

Premature Withdrawal

Partial withdrawals allowed from the third year of the investment from Tier II Account. From Tier II Account, withdrawals can be done at any time. Premature exit is allowed but in this case, 20% of the account balance is paid in a lump sum and a balance of 80% is used to pay annuities. APY does not allow premature withdrawals, except in the case of terminal illness or the death of the accountholder. In such cases, the entire account balance is paid, and the account is terminated.

Asset Allocation of Invested Funds

Funds invested in NPS are further invested in the market. The funds can be invested in alternate investment funds, fixed income instruments, equity stocks and Government securities. Funds invested in APY is further invested in a specified manner only in government securities.


There is no maximum limit on investments made in NPS. Therefore, any amount can be invested in NPS if it meets the minimum contribution criterion. The investment in APY depends on the age of entry, the pension amount selected, and the mode of investment. The investment is fixed throughout the tenure of APY.

Benefits on Maturity

Under NPS, on maturity, 60% of the invested amount can be withdrawn in a lump sum and pension is paid from the remaining 40% of the invested amount. Under APY, after maturity, the pension guaranteed is paid to the accountholder throughout his or his spouse’s life.

Nomination Facility

Nomination facility is available, and anyone can the nominee. Nomination facility is available, but the nominee should be someone other than the spouse.