With the PMVVY or the Pradhan Mantri Vaya Vandana Yojana scheme offered by the LIC (Life Insurance Corporation of India), seniors citizens have the option of investing up to INR 15 lakhs and receive a monthly fixed payment of up to INR 10,000 for a period of ten years.
The PMVVY is a pension plan that offers assured returns of 8 percent. The cabinet of the Indian Central government has passed their approval to double the limit of investment from INR 7.5 lakhs to INR 15 lakhs for this pension scheme. A budget announcement to this effect was made on the 1st of February and the decision to approve it followed soon. The pension plan will assist senior citizens to save their retirement funds in the scheme of assured returns. With the passage of this new decision, the PMVVY can be compared with the benefits offered by the SCSS (Senior Citizen Savings Scheme) offered by post offices and banks where the limit of investment is INR 15 lakhs. Under this new pension plan, the subscription time limit has been increased from the 4th of May 2018 to the 31st of March 2020. The PMVVY was launched in May 2017; since then, over 2.1 lakh senior citizens have benefited from it.
What are the fixed assured monthly payouts?
The LIC operated PMVVY pension plan can be availed by Indians who are 60 years old or older, if they make an investment of up to INR 15 lakhs, and subsequently each of these investors in the scheme will receive a pension of INR 10,000 every month for a period of ten years. If INR 7.5 lakhs is invested by an individual, then the pension amount payout every month will be INR 5000 for ten years. It is important to note that income received through annuities of PMVVY and other such pension plans are not tax free. If the pensioner passes away during the 10 year term of the scheme, then the beneficiary will receive the purchase price of the policy.
The policy holder can choose to get the pension payouts in a monthly, quarterly, half-yearly, or on an annual basis. The difference in the return, which is the different between the 80 percent assured return per annum and the returns produced by the policy operator LIC, would be borne as subsidy by the Central government every/per year.
The pension scheme also has the option for the holder to exit prematurely for treatment of any terminal or critical disease that affects the policy holder or his/her spouse. In such instances of premature exit, the pension will receive 98 percent of the buying price as a refund. PMVVY pensioners also have the option of taking a loan amounting to up to 75 percent of the buying price of the scheme after holding it for 3 years. The interest charged on such a loan will be taken from the installments that are passed on as pension.
What are the returns offered by Senior Citizen Savings Schemes?
Citizens can open up a Senior Citizen Savings Scheme account in a post office branch or any bank with SCSS authorization. As of May 2018, the interest rate offered by 5-year SCSS is 8.3 percent. People who are 60 years old or older can open such an account and park up to INR 15 lakhs in it. People who are older than 55 years but younger than 60 years and who have retired under VRS or on superannuation also have the option of opening an SCSS account, if they meet certain conditions like, (a) opening the account within 1 month of getting the retirement benefits, and (b) the amount deposited should not be more than the amount received as retirement gains.
Investments made under the SCSS plan are eligible for tax benefits under Section 80C of the 1961Income Tax Act. Eligible individuals can put in the names of the nominee when opening up the SCSS account or also after the account has been opened. Eligible people can open several accounts; it is however subject to the maximum limit of investments, which is found by adding the balance present in all the accounts of the policy holder. Joint SCSS account can be opened only with one’s spouse and the investor in such a joint account is the first depositor. After the scheme reaches maturity, the holder can extend the account for a period of 3 more years within 1 year of it reaching maturity. One has to apply in available format for extension of the account.
Different annuity products offered by life insurance companies
An annuity is defined as a guaranteed sum that is paid to a policy holder for lifetime for investment of a lump sum. Options of passing on the pension to one’s spouse as well as return of the lump-sum investment to children are also available; these however reduce the effective returns. Annuity products usually come with 6 to 7 percent rate of interest, which is taxed. Hence, annuity products do not make a large chunk of the insurance industry.
With regards to bank deposits, State Bank of India offers interest rate of 7.25 percent to senior citizens on a lump sum investment for a period of 5 to 10 years. Hence, investing a chunk of the corpus received after retirement in PMVVY makes a lot more sense!