“FEASIBILITY ANALYSIS OF ATAL PENSION YOJANA”
-Sudindra V R
1. INTRODUCTION
The NPS- New Pension System introduced by Government of India is extremely concerned with protection of unorganized sector workers and to promote voluntarily save for their retirement. As per NSSO survey 2011-12, 88% of total workforces in India are come under the umbrella of unorganized sector who are inadequately covered under pension. The new scheme introduce will be administered by Pension Fund Regulatory and Development Authority (PFRDA), Atal Pension Yojana applicable to age bracket between 18 to 40 years which gives subscribers the fixed pension of Rs. 1000, Rs. 2000, Rs. 3000, Rs. 4000 and Rs. 5000 per month after attainment of age of 60, subjected to contribution and age at the time of entering into pension scheme. APY provides exit option only at the age of attaining 60 years only and in case of death the pension will be available to the spouse. The above benefit needs to be analyzed using the value of money, which gives the subscriber to lead retirement with proper corpus or monthly income which meets the requirements.
The monthly contribution under APY is based on pension needed, the entry age of subscriber and monthly contribution. In case of discontinuation of scheme within 6 months account will be frozen, after 12 months account will be deactivated, after 24 months account will be closed and the scheme may not be flexible to certain group of individuals. The government Co contributes Rs. 1000 per annum or 50% of total contribution amount whichever is lower for the period of 5 years. Before subscription to scheme it require to analyze the adequacy of benefit, as the value of money is not be same over a period of time and need to analyze the feasibility of subscription.
2. OBJECTIVES OF ANALYSIS: The objective of the analysis is to analyze the feasibility of subscription of Atal Pension Yojana as a retirement planning instrument.
3. METHODOLOGY: The study has been conducted with secondary data using future value of contribution per month, present value of contribution and present value of pension benefit receivable. For the purpose of study starting age of 18, 25, 30, 35 and 40 has been considered with monthly pension post 60 years of Rs. 1000, Rs. 2000 and Rs.5000. The study compares the present value of pension benefit to present value of contribution to analyze whether subscriber gets benefits out of the scheme.
The study is based on certain assumption:
Ø It is assumed that the discounting rate and compounding rate will be fluctuating over a period, hence 3 different rates namely 8%, 7.5% and 6.5% has been considered for the purpose of calculation of future value of contribution, present value of contribution and present value of receivables.
Ø It is based on assumption Ceteris paribus.
Ø It is uni dimensional study, considered inflation as variable and it is deferred annuity.
Ø Government Co contribution for the scheme is not considered.
Ø It is assumed that the subscriber or spouse will get the monthly pension benefit over a period of 20 years from the starting age of 60 years.
4. DATA ANALYSIS AND RESULT:
Table 4.1 Table showing the present value of pension benefit, the present value of contributions and differences between pension and contribution for defined pension benefit of Rs. 1000
Entry Age | At 8% | At 7.5% | At 6.5% | ||||||
PV of Pension | PV of Contribution | Differences | PV of Pension | PV of Contribution | Differences | PV of Pension | PV of Contribution | Differences | |
18 | 4199 | 6079 | -1879 | 5371 | 6429 | -1058 | 8812 | 7244 | 1568 |
25 | 7338 | 10700 | -3362 | 9066 | 11272 | -2206 | 13873 | 12580 | 1293 |
30 | 10932 | 15809 | -4877 | 13175 | 16590 | -3415 | 19183 | 18352 | 831 |
35 | 16288 | 23451 | -7163 | 19147 | 24493 | -5346 | 26527 | 26807 | -280 |
40 | 24266 | 34790 | -10524 | 27827 | 36122 | -8295 | 36682 | 39030 | -2348 |
Sources: authors own calculation.
Tab
le 4.1 provides at 8% and 7.5% interest factor the differences between the present value of pension benefit and the present value of contribution is all negative and it is not feasible to subscribe the Atal Pension Yojana. At 6.5% interest factor the age of 18 to 30 will be getting positive and it is not suggestible to subscribe the scheme after 30 years.
le 4.1 provides at 8% and 7.5% interest factor the differences between the present value of pension benefit and the present value of contribution is all negative and it is not feasible to subscribe the Atal Pension Yojana. At 6.5% interest factor the age of 18 to 30 will be getting positive and it is not suggestible to subscribe the scheme after 30 years.
Table 4.2 Table showing the present value of pension benefit, the present value of contributions and differences between pension and contribution for defined pension benefit of Rs. 2000
Entry Age | At 8% | At 7.5% | At 6.5% | ||||||
PV of Pension | PV of Contribution | Differences | PV of Pension | PV of Contribution | Differences | PV of Pension | PV of Contribution | Differences | |
18 | 8398 | 12157 | -3759 | 10743 | 12858 | -2115 | 16311 | 14489 | 1822 |
25 | 14676 | 21260 | -6584 | 18132 | 22396 | -4264 | 25678 | 24994 | 684 |
30 | 21864 | 31481 | -9617 | 26351 | 33037 | -6686 | 35508 | 36547 | -1039 |
35 | 32575 | 46902 | -14327 | 38295 | 48986 | -10691 | 49101 | 53613 | -4512 |
40 | 48532 | 69581 | -21049 | 55654 | 72245 | -16591 | 67898 | 78061 | -10163 |
Sources: authors own calculation.
Table 4.2 provides at 8% and 7.5% interest factor the differences between the present value of pension benefit and the present value of contribution is all negative and it is not feasible to subscribe the Atal Pension Yojana. At 6.5% interest factor the age of 18 to 25 will be getting positive and it is not suggestible to subscribe the scheme after 25 years.
Table 4.3 Table showing the present value of pension benefit, the present value of contributions and differences between pension and contribution for defined pension benefit of Rs. 5000
Entry Age | At 8% | At 7.5% | At 6.5% | ||||||
PV of Pension | PV of Contribution | Differences | PV of Pension | PV of Contribution | Differences | PV of Pension | PV of Contribution | Differences | |
18 | 20997 | 30394 | -9397 | 26859 | 32146 | -5287 | 16311 | 14489 | 1822 |
25 | 36690 | 52938 | -16248 | 45329 | 55766 | -10437 | 25678 | 24994 | 684 |
30 | 54662 | 78636 | -23974 | 65877 | 82521 | -16644 | 35508 | 36547 | -1039 |
35 | 81438 | 116867 | -35429 | 95738 | 122058 | -26320 | 49101 | 53613 | -4512 |
40 | 121331 | 173831 | -52500 | 139136 | 180488 | -41352 | 67898 | 78061 | -10163 |
Sources: authors own calculation.
Table 4.3 provides at 8% and 7.5% interest factor the differences between the present value of pension benefit and the present value of contribution is all negative and it is not feasible to subscribe the Atal Pension Yojana. At 6.5% interest factor the age of 18 to 25 will be getting positive and it is not suggestible to subscribe the scheme after 25 years.
5. CONCLUSION: As a part of Financial Inclusion, the Government of India’s Atal Pension Yojana a defined benefit scheme introduced to protect the unorganized sector workers will not serve the purpose of income security and retirement benefit. As per the analysis the scheme is not giving positive present value to subscriber at 8%, 7.5% interest factor and will provide incentive at 6.5%. To cater the need of unorganized sector workforce government has to co-contribute more amount in the scheme.
6. REFERENCES:
