Interim Budget 2024: Will Centre raise minimum pension amount under Atal Pension Yojana? Here's what we know

Union Finance Minister Nirmala Sitharaman will read out the Interim Budget 2024 on February 1. Though there is a clear indication that the Centre may not declare major changes in the taxation system like last year, there is a buzz that the Cente may bring in some modifications in the Atal Pension Yojana.

Government sources said that the Centre may increase the minimum pension amount under Atal Pension Yojana, which would primarily benefit the unorganised workforce in the country.  

“We are considering the proposal. A decision is likely either in the Interim Budget or outside of it,” a government official told Business Standard earlier this week.

The Atal Pension Yojana (APY) is a government-sponsored guaranteed pension scheme with a monthly income range between Rs 1,000 and Rs 5,000. The maximum monthly pension amount is Rs 5,000 at present. All Indian citizens between the ages of 18 and 40 are eligible for the APY.

The Pension Fund Regulatory and Development Authority (PFRDA) had previously requested the Centre to raise the guaranteed pension amount under the scheme. This is because the current amount may not be enticing enough for potential subscribers to join.

Deepak Mohanty, Chairman of PFRDA, had asked the government to increase the maximum monthly pension amount from Rs 5,000 to Rs 10,000.

Earlier this month, Mohanty said that the pension schemes have added 97 lakh new subscribers in 2023, taking the total subscriber base to 7.03 crore as of December 31, 2023. Of the total subscribers, 5.3 crore subscribers invested in the Atal Pension Yojana, which had an AUM of Rs 33,034 crore as of December 31.

PFRDA has also proposed a relaxation in tax rules for private sector employers under the National Pension System (NPS) under this year's Budget. “We have made a case for bringing the tax benefits on employers’ NPS contribution at par with the employees’ provident fund (EPF) contribution limit of 12 per cent,” Mohanty said.

The employer's contribution to the provident fund (PF) is deductible up to 12 per cent of the salary (basic + dearness allowance) up to the maximum limit of Rs 7.5 lakh. Interest in this contribution is tax-exempt.

In contrast, under the National Pension System, the employer's contribution towards NPS is only exempt up to 10 per cent of salary (basic + dearness allowance).

NPS was launched in 2004 and is a market-linked pension plan that replaced the old pension scheme.

It was earlier reported that the Centre is anticipated to submit a progress report on NPS. The report is being prepared by a Finance ministry team headed by finance secretary TV Somanathan. The panel was established by the Centre in April 2023 to address the matter of pensions for government employees under the NPS. The committee is considering modifications and guarantees, but the Centre has made it clear that it is not inclined to augment the fiscal load or return to the previous pension system.

The Centre has argued that the Old Pension Scheme is not financially viable, which is why it has been discontinued. The Reserve Bank of India (RBI) and several economists disagree with bringing back the OPS, as they believe it would disrupt the fiscal equilibrium of the states.

But a few Congress-ruled states, Himachal Pradesh and earlier Rajasthan and Chhatisgarh, adopted OPS.

Under the non-contributory OPS (for pre-2004 staff), a government employee who has served for 20 years without interruption is entitled to receive a pension equal to 50 per cent of their last salary.

For employees with uninterrupted service of more than 10 years but less than 20 years, the pension amount is calculated on a pro-rata basis. Additionally, their pension is adjusted for inflation twice a year.

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