War of words: FM hits back at Jairam Ramesh after he calls Atal Pension Yojana ‘sinking ship’

Union Finance Minister Nirmala Sitharaman on Tuesday got engaged in a war of words with Congress general secretary Jairam Ramesh after he called the NDA government’s flagship scheme, Atal Pension Yojana, a ‘poorly designed scheme’.

The war of words started in the morning when Ramesh posted a huge write-up claiming that the scheme is a “paper tiger” that needs officials to hoodwink and coerce people into participating in it. “It’s a fitting representation of the Modi Government’s policymaking: headline management, with few benefits actually reaching the people!”

His attack was based on a media report that claimed that nearly one of three subscribers who dropped out of the central government’s pension scheme for the unorganised sector, the Atal Pension Yojana (APY), did so because their accounts were opened without their “explicit” permission. 

The report cited a recent sample study by the Indian Council of Social Science Research (ICSSR).

Ramesh said nearly 83 per cent of the subscribers are in the lowest slab of Rs. 1,000 pension, because the monthly contribution for it is low and it goes “unnoticed” by the beneficiaries.

For subscribers, the amount of return is not very attractive since it is a fixed income pension, which loses value with rising prices, Ramesh said.

Within a few hours, FM Sitharaman charged him back of spreading misinformation. FM Sitharaman said the Atal Pension Yojana is a subsidised scheme intended for the poor and the lower middle class.

She said: “Atal Pension Yojana is designed based on best practice choice architecture to automatically continue the premium payment unless the subscriber opts out. This is a deliberate and beneficial feature which is in the best interest of the subscribers. Instead of requiring people to decide each year to continue, they have to take a decision to discontinue. This makes many of them take the right decision and save for their retirement. Richard Thaler (Nobel prize winner in Economics 2017) and Cass Sunstein (a Professor who worked in the Obama administration) are known for their book ‘Nudge’ which explains the need for proper ‘choice architecture’ in designing public schemes.”

The heated argument didn’t stop there. Ramesh again posted on X with fresh allegations that the scheme, which was launched in 2015, guarantees only Rs 1,000 per month as a minimum pension for the overwhelming majority of its subscribers. 

He said the scheme is not well designed and added: “A Rs 1,000 per month pension in 2035 is equivalent to just Rs. 617 rupees per month in 2024 prices (assuming a continuation of Modi-era inflation rates). This is the kind of erosion of value that makes the APY a poorly-designed scheme.”

He further said: “It is important to note that the coercive nature of the Atal Pension Yojana is not an isolated instance – many other of the Modi Sarkar’s “flagship” government banking schemes are implemented forcefully. Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Pradhan Mantri Suraksha Bima Yojana (PMSBY) have illegally debited money from customers’ bank accounts without their consent. Is the FM of the opinion that taking money from Indians without their consent is a “nudge”? These schemes have also been found to be full of “bogus nominees” and forged documents, as per a recent investigative report. Fraudulent practices are used to meet huge targets by bank officers.”  

Countering the fresh allegations, FM Sitharaman said: “Under APY, Direct Debit is only allowed with consent of the subscriber. At the time of application, a subscriber gives express & explicit authorization indicating contribution amount, frequency of contribution and auto-debit from his/her bank account. If a subscriber wishes to exit the scheme, he/ she is permitted to exit scheme and the entire pension wealth is returned. Therefore, the assertion that enrolment is non-consensual,based on cherry-picked data, is wrong.”

She added: “As  per the ICSSR report, out of the 2461 total surveyed, 38 have attributed exit due to their perception of account being opened without consent. This is ONLY 1.54% of the total (38/2461) and is NOT 1/3rd as mischievously mentioned by you! APY does give returns, and it has given 9.1% since inception, which is quite competitive even compared with other saving schemes. Any upside above assured pension is completely with the beneficiary. As a part of GoI’s financial inclusion initiative, banks (private and public) reach out to underserved sections of the population. For giving a pension of ₹ 1000/month, subscription is only ₹ 42/month (enrolling at age of 18). APY scheme has been designed to be an affordable scheme with a guaranteed pension amount.”

It is to be noted that Atal Pension Yojana (APY) is a pension scheme focused on the unorganised sector workers. Under the scheme, a guaranteed minimum pension of Rs. 1,000/- or 2,000/- or 3,000/- or 4,000 or 5,000/- per month will be given at the age of 60 years depending on the contributions by the subscribers. The minimum and maximum pension an individual can get is Rs 1,000 per month (Rs 12,000 annually) and Rs 5,000 per month (Rs 60,000 annually), respectively.

The scheme can be availed of by any individual aged between 18 and 40 years of age. The contribution will depend on the age of the subscriber at the time of joining the scheme. For instance, a subscriber at the age of 18 years opting for a monthly pension of Rs 5,000 will pay a monthly contribution of Rs 210 for 42 years. Similarly, a subscriber at the age of 24 opting for a monthly pension of Rs 5,000 will pay a monthly contribution of Rs 346 for 36 years.

In 2022, the government had barred taxpayers from joining the APY scheme. 

People in their 20s or 30s may find Rs 5,000 monthly pension at 60 small. APY is a secure pension scheme distinct from NPS and other insurance plans available in the market.

One can calculate the amount of pension he or she will get after 30 years. 

A = Y/[ (1+i)^(n)]

A” Present/today’s value of Rs 5,000 initial pension at the age of 60 years of an individual of current age 30 years
i is the inflation rate
n is the number of years
Y is Rs 5,000 pension which starts at the age of 60 years of an individual.