Here comes yet another pension scheme for senior citizens. The government has come out with the Pradhan Mantri Vaya Vandana Yojana (PMVVY) for senior citizens aged 60 years and above, which is available from May 4, 2017 to May 3, 2018. The scheme can be purchased both offline and online through the Life Insurance Corporation (LIC) of India which has been given the sole privilege to operate this scheme.
However, before knowing whether the scheme is suitable for you or not, let’s look at the main features of this scheme.
The scheme provides an assured return of 8% p.a. payable monthly (equivalent to 8.30% p.a. effective) for 10 years. Pension is payable at the end of each period, during the policy term of 10 years, as per the frequency of monthly/ quarterly/ half-yearly/ yearly as chosen by the pensioner at the time of purchase. The scheme is exempted from Service Tax/ GST. On survival of the pensioner to the end of the policy term of 10 years, purchase price along with final pension installment shall be payable.
As per the scheme, loans up to 75% of purchase price shall be allowed after 3 policy years (to meet the liquidity needs). The loan interest will be recovered from the pension installments and the loan will be recovered from claim proceeds. The scheme also allows for premature exit for the treatment of any critical/ terminal illness of self or spouse. On such premature exit, 98% of the purchase price shall be refunded, whereas on the death of the pensioner during the policy term of 10 years, the purchase price shall be paid to the beneficiary.
Minimum / Maximum Purchase Price and Pension Amount:
|Mode of Pension||Minimum Purchase Price||Maximum
|Minimum Pension amount||Maximum Pension amount|
|Yearly||Rs. 1,44,578/-||Rs. 7,22,892/-||Rs. 12,000/-||Rs. 60,000/-|
|Half-yearly||Rs. 1,47,601/-||Rs. 7,38,007/-||Rs. 6,000/-||Rs. 30,000/-|
|Quarterly||Rs. 1,49,068/-||Rs. 7,45,342/-||Rs. 3,000/-||Rs. 15,000/-|
|Monthly||Rs. 1,50,000/-||Rs. 7,50,000/-||Rs. 1,000/-||Rs. 5,000/-|
Should you go for this scheme?
As is evident from the features of the scheme, it provides an assured return of 8% p.a. monthly (equivalent to 8.30% p.a. effective) for 10 years and is also exempted from Service Tax/ GST. So, in this falling interest regime whereby even the interest rates of small and government-guaranteed savings schemes keep falling, this appears a good scheme for investment.
“The scheme has two USPs. One is the return of 8% p.a. which is a very good rate of interest when you look at fixed deposits fetching not more than 7% p.a. One more advantage is that the rate of return will remain 8% for the next 10 years, which is definitely a boon for senior citizens. It will ensure a smooth and consistent cash flow for them. Given the inflation rate of 4-5% p.a., the guaranteed pension at 8% p.a. is going to be so relieving,” says Atul Surana, Certified Financial Planner, Catalyst Financial Planning.
Ashish Kapur, CEO, Invest Shoppe, says, “PMVVY is a scheme worth investing for senior citizens. Apart from PPF, there is no scheme with such high-guaranteed returns. Even in PPF you cannot opt for periodic – monthly, quarterly or half yearly withdrawal of accumulated returns. With falling interest rates, there are no other options which generate 8 percent or more government-backed guaranteed returns and that top on a periodic basis as per the investor’s choice. Hence from a practical point of view, this scheme makes a lot of sense for senior citizens who do not have a regular income source for their old age and need to plan for that.”
However, according to some financial experts, this scheme has also got some limitations. First of all, unlike other pension schemes, this is a limited years scheme, which means comparing them to a life-long annuity scheme like immediate annuity is not appropriate. By definition of life, insurance annuity has to be offered for life to the annuitant. Secondly, the scheme is a replica of Pradhan Mantri Varisthta Pension Bima Yojana 2017, which also offered guaranteed 8% interest for 10 years. The scheme got a huge success and so the government launched another one.
“This scheme can be compared to other limited years schemes such as Senior Citizen Savings Scheme (SCSS) or Post Office MIS. The interest rates offered in SCSS also stands today at 8.4% which is locked till maturity once you invest. This is higher than the announced scheme. Also, in SCSS you can invest up to Rs 15 lakh, but here you can invest only up to Rs 7.5 lakh. When I look at both these features, then I stand to gain in SCSS. However, guaranteed schemes always attract us and a guaranteed for 10 years will attract people. Although PMVVY will provide a fixed income for 10 years, it does not factor in inflation which is a dampener. In my view, it’s the assured return which is attracting investors, but there are more lucrative options available in the market where one stands to benefit more,” says Jitendra P.S. Solanki, CFP & Planner for Special Needs Member Families.