The Pradhan Mantri Vaya Vandana Yojana (PMVVY) was launched on July 21 by Finance Minister Arun Jaitley. However, the Life Insurance Corporation of India (LIC) has been offering the scheme from May 4, 2017. LIC has been given the sole privilege to operate the scheme, and it will remain for subscription till May 3, 2018.
Just like the Varistha Bima Yojana launched in August 2014, PMVVY also aims to provide regular pension to senior citizens above the age of 60. Is this a good scheme considering the recent falling interest rate scenario? Let’s understand the nuts and bolts of the new scheme in the following paragraphs:
Features of the scheme
Senior citizens above 60 years are eligible to invest in PMVVY, which is an immediate annuity product. This means, a senior citizen will deposit a lump sum amount and start getting pension from the next month itself for 10 years from the date of investment.
The investor has the option of choosing monthly, quarterly, half-yearly and yearly payouts. The pension depends on the option chosen and on the investment or purchase price. The scheme guarantees an assured return of 8% for monthly option and 8.30% for yearly option.
For understanding, the minimum lump sum investment under the scheme will be Rs 1,50,000, if you want a minimum monthly pension of Rs 1,000 and Rs 1,44,578, if you want an yearly pension of Rs 12,000. The maximum purchase price will be Rs 7,50,000 for a monthly pension of Rs 5,000 and Rs 7,22,892 for yearly pension of Rs 60,000.
Know more about the features:
*There is a ceiling of Rs 7,50,000 per family including your spouse and dependents and not per individual.
*Premature withdrawals are allowed if the pensioner or spouse is suffering from critical illness. The withdrawal is subject to 98% of the initial investment amount.
*At the end of 10 years, the purchase price will be returned to the investor. In the case of his/her death during the tenure the investment, the amount will be returned to the nominee.
*Loan facility up to 75% of investment amount is available for a pensioner after three years.
*The scheme can be purchased offline as well as online from LIC of India.
*The scheme is exempt from GST
So how good is PMVVY?
To answer this, the scheme has to be compared with other guaranteed immediate annuity plans available for senior citizens. Let’s compare it with the Senior citizen’s savings scheme of post office.
While Senior citizen Savings scheme scores over PMVVY in respect of Sec 80C benefits , maximum amount, rate of interest and one time extension, PMVVY scores over SCSY as regards tenure and frequency of interest payment.
Shortcomings of the scheme
The ceiling of Rs 7,50,000 effectively caps the monthly pension at Rs 5,000 which may not be sufficient to meet the rising expenses of the individual and dependents. The ceiling on initial investment amount of Rs 7,50,000 per family rather than individual also is another serious drawback of the scheme. It would have been better if the ceiling was Rs 15 lakh as the pensioner would have got a monthly pension of Rs 10,000.
When the objective of the government was to provide social security to citizens, the tenure of 10 years seems a little short. With life expectancy of Indians going up what if the pensioner survives the tenure? In a falling interest rate scenario, the pensioner would be exposed to reinvestment risk. Should the government allow the senior citizen to fend for himself?
The most glaring of all is the lack of clarity on the tax benefits front. There is no word on Sec 80C benefits under the scheme. In the absence of Sec 80C benefits, PMVVY will come under Exempt Exempt Exempt Category.
Conclusion
Under the circumstances, the best case scenario for senior citizens is to invest Rs 7.50 lakh in PMVVY and Rs 15lakh in SCSS of post office, and a combination of which should give one an annuity of around Rs 15,000 per month.
(The writer is a former banker, and is currently teaching at Manipal Academy of Banking, Bengaluru)
Published 13 August 2017, 18:08 IST