Good news for senior citizens: Here’s how PMVVY can ensure fixed income in old age
Senior citizens can now invest up to Rs 15 lakh in Pradhan Mantri Vaya Vandana Yojana (PMVVY) offered by Life Insurance Corporation of India and get a fixed monthly payout of up to `10,000 for 10 years.
The cabinet has now approved to double the investment limit from `7.5 lakh to `15 lakh under PMVVY, a pension scheme with 8% assured returns. The decision, which follows a Budget announcement on February 1, will help senior citizens to park their retirement corpus in the assured return scheme. With this, PMVVY is now on par with Senior Citizen Savings Scheme (SCSS) of banks and post offices where the investment limit is `15 lakh. The time limit for subscription under PMVVY scheme has been extended from May 4, 2018 to March 31, 2020. The scheme, launched in May last year has benefited 2.2 lakh senior citizens.
Fixed payouts
In this pension scheme operated by LIC for citizens aged 60 years and above, if an individual invests `15 lakh, he will get a monthly pension of Rs 10,000 for 10 years. If one invests `7.5 lakh, the monthly pension will be `5,000 for 10 years. Income from annuities of pension plans such as PMVVY are taxable. On death of the pensioner during the policy term of 10 years, the purchase price will be paid to the beneficiary.
The subscriber has an option to opt for pension on a monthly or quarterly or half yearly and annual basis. The differential return, i.e., the difference between the return generated by LIC and the assured return of 8% per annum would be borne by Centre as subsidy on an annual basis.
The scheme allows for premature exit for the treatment of any critical, terminal illness of the pensioner or spouse. On such premature exit, 98% of the purchase price will be refunded. One can avail loan up to 75% of purchase price after three years of the policy. The interest for the loan will be recovered from the pension installments.
Returns from SCSS
The SCSS account can be opened in any authorised bank or post office branch. At present (April-June 2018 quarter), 5-year SCSS offers interest rate of 8.3%. An individual of 60 years or more can open the account and deposit up to Rs 15 lakh. An individual above 55 years but below 60 years who has retired on superannuation or under VRS can also open account subject to the condition that the account is opened within one month of receipt of retirement benefits and amount should not exceed the amount of retirement benefits.
Investment under this scheme qualifies for the benefit of Section 80C of the Income Tax Act, 1961. Nomination facility is available at the time of opening and also after opening of account. Any number of accounts can be opened subject to maximum investment limit by adding balance in all accounts. Joint account can be opened with spouse only and first depositor in the joint account is the investor. After maturity, the account can be extended for further three years within one year of the maturity by giving application in prescribed format.
Annuity products from life insurers
An annuity is a guaranteed amount paid to a subscriber for lifetime for a lumpsum investment. There is an option to extend the pension to the spouse and even return the corpus to the child, but this lowers effective returns. Typically, annuity products offer interest rates of 6-7%, which is taxable. As a result, annuity products do not account for a high proportion of the insurance business.
In case of bank deposits, for instance, SBI is offering 7.25% to senior citizens if they invest for five to 10 years. So, it makes sense for senior citizens to park a part of their retirement corpus in PMVVY.