After the success of Pradhanmantri Jan Dhan Yojana in which 12.5 crore accounts were opened till January 2015, Prime Minister Narendra Modi has introduced three more social security schemes in the second phase of financial inclusion. These schemes are Pradhanmantri Jeevan Jyoti Bima Yojana (PJJBY), Pradhanmantri Suraksha Bima Yojana (PSBY) and the Atal Pension Yojana (APY).
Banks are the distributors for these schemes. Also, an Aadhaar linked bank account is mandatory to avail the benefit of these schemes. However, banks (Point of Presence) can employ mutual fund distributors as sub-brokers to sell Atal Pension Scheme.
These schemes have an EEE status. Simply put, the contribution, accrual and maturity are all tax free in the hands of investors.
Payment can be made only through electronic clearing system (ECS) or auto debit facility.
Pradhanmantri Jeevan Jyoti Bima Yojana (PJJBY)
As the name suggests, Pradhanmantri Jeevan Jyoti Bima Yojana is a term insurance policy offering a life coverage till 55 years of age. However, the premium paying term is not fixed. Policyholders are required to renew it every year till 55 to avail the benefit.
The scheme is meant for people falling under age group of 18-50 years.
It offers a life cover of Rs.2 lakh at a premium of Rs.330 per annum. However, the premium amount can be revised after three years depending on the claim settlement experience of insurers.
Banks will get Rs.30 (almost 10%) as a commission per policy and Rs.11 towards administration charges to sell this scheme.
Investors will have to furnish declaration form of good health for buying this scheme after May 31.
Pradhanmantri Suraksha Bima Yojana (PSBY)
PSBY is an accidental insurance policy which provides a coverage of Rs.2 lakh up to 70 years of age. Like PJJY, policyholders need to renew it every year till 70 years to avail benefits.
The scheme is available for the individuals falling under age group of 18-70 years. It provides an insurance cover of Rs.2 lakh if a policyholder dies of accident or suffer from disability due to an accident. In case of partial disability, the policyholder will get Rs.1 lakh. The premium is fixed at an extremely low price of Rs.12 which can be revised after three years based on claim settlement experience of insurers.
Banks will get Rs.1 each as commission and administrative expenses.
Atal Pension Yojana (APY)
The APY is a defined contribution plan in which government will contribute 50% of the contribution or Rs.1,000 whichever is lower for the first five years to the subscriber’s account joining before December 31, 2015.
PFRDA will oversee this scheme which is more or less in line with the NPS Swavalamban scheme. All subscribers of Swavalamban scheme will automatically be migrated to APY. However, Swavalamban subscribers have an option to opt out of it. Swavalamban is also a defined contribution plan meant for workers of the unorganized sector.
Though the scheme is open for all, the government contribution will only be given to the workers of the unorganized sector who typically do not have any statutory social security scheme and are non-tax payers.
The age group for joining APY is 18-40 years. There will no lump sum benefit on maturity of scheme at 60. However, the accumulated corpus (prevailing value of fund calculated after returns) will be returned to the nominee in case of death and medical conditions.
APY provides monthly life annuity along with return of maturity corpus to its subscribers. Subscribers can opt for a fixed monthly pension of Rs.1,000, Rs.2,000, Rs.3,000, Rs.4,000 and Rs.5,000 per month. For instance, an 18 year old will have to contribute Rs.42 monthly for 42 years to get an annuity of Rs.1,000 per month.
A rough calculation of a 25 year old subscriber who opts the pension of Rs.1,000 with return of maturity corpus shows that the scheme gives a return of 8.16% during accrual phase and 7.33% on disbursal phase (life expectancy 80 years or 20 years post retirement).
Both the insurance schemes – PJJBY and PSBY are good for investors. In fact, PSBY is available at an extremely low cost. However, the pension scheme or APY will deliver suboptimal returns and has nothing much to offer if we factor in inflation.