<p>The Pradhan Mantri Vaya Vandana Yojana (PMVVY) was initially launched in 2017 by the government with the objective to provide social security to senior citizens and provide them with regular income. This was after the government had done away with pensions in most of the government departments, public sector undertakings and banks.</p>.<p>In the last decade or so, the government launched many defined contribution plans like the Atal Pension Yojana (APY), National Pension Scheme (NPS) et cetera.</p>.<p>Since the ongoing benefits of the PMVVY are available to all the policies purchased before March 31, 2023, let us look at the nuts and bolts of the scheme:</p>.<p><strong>Features</strong></p>.<p>PMVYY is a government-subsidised pension scheme for senior citizens aged 60 years and more. The scheme is administered by LIC of India on behalf of the Union government. If you want to purchase the scheme online, you can log on to the website of LIC. While there is no maximum age limit for the scheme, the tenure of the scheme is 10 years.</p>.<p><strong>Rate of Interest</strong></p>.<p>As per the terms of PMVVY, the guaranteed rate of pension for policies sold during a year will be reviewed and decided at the beginning of each year by the Ministry of Finance, Government of India. The guaranteed rate of pension on policies sold during FY 2022-23 is 7.40 per cent per annum payable monthly (equivalent to 7.66 per cent p.a.). This rate of interest will be payable for the full policy term of 10 years for all the policies purchased till March 31, 2023 irrespective of changes in interest rate.</p>.<p><strong>Mode & quantum of pension payment</strong></p>.<p>The policyholder can choose a monthly/quarterly/half-yearly or yearly mode of payment for receiving a pension.</p>.<p>The first instalment of pension shall be paid after one year, six months, three months, or one month from the date of purchase of the same depending on the chosen mode of pension payment i.e. yearly, half-yearly, quarterly, or monthly respectively.</p>.<p>The amount of pension depends on the purchase price and mode of payment. For example, you can get the maximum monthly pension of Rs 9,250 on a purchase price of Rs 15 lakhs. If you opt for annual payment, the pension will be Rs 1,11,000 and the purchase price will be Rs 14,49,086. Incidentally, the maximum amount that an individual can invest under the scheme is capped at Rs 15 lakhs. Since the scheme operates as a pension plan, pension payment/purchase price is exempt from GST.</p>.<p><strong>Premature closure</strong></p>.<p>A policy taken under PMVVY can be surrendered anytime during its term under exceptional circumstances i.e when the pensioner requires money for the treatment of any critical or terminal illness of self or spouse. The surrender value payable under the scheme will be 98 per cent of the purchase price.</p>.<p>Loan facility</p>.<p>You can also avail loan facility of up to 75 per cent of the investment amount after the completion of three policy years. Loan interest will be recovered from the pension amount payable to you under the policy.</p>.<p><strong>PMVVY vs Senior Citizen Savings Scheme</strong></p>.<p>Like PMVVY, the Senior Citizen Savings Scheme (SCSS) is also a government scheme aimed at providing regular income to senior citizens. Individuals can invest a maximum amount of Rs 15 lakhs and the scheme has a tenure of five years, which can be extended for a period of three years. The scheme also offers an interest rate of 7.4 per cent payable quarterly. But the biggest advantage for a senior citizen is that he can claim tax benefits up to a maximum amount of Rs 1.50 lakhs under Section 80C of the Income tax act. While the SCSS scores over PMVVY in respect of tax benefits and one-time extension, PMVVY scores over SCSS over tenure and frequency of pension payment.</p>.<p>In the final analysis, if the objective of the government was to provide social security to elderly persons, the tenure of 10 years is baffling since the senior citizen has to fend for himself after maturity. Another drawback is the lack of tax benefits under the scheme on the investment amount. As interest rates are going up due to inflation, many banks are offering deposits at attractive rates. The government needs to revisit interest rates quickly.</p>.<p><em>(The author is a certified financial analyst, former banker and currently teaches at Manipal Academy of Higher Education, Bengaluru)</em></p>
<p>The Pradhan Mantri Vaya Vandana Yojana (PMVVY) was initially launched in 2017 by the government with the objective to provide social security to senior citizens and provide them with regular income. This was after the government had done away with pensions in most of the government departments, public sector undertakings and banks.</p>.<p>In the last decade or so, the government launched many defined contribution plans like the Atal Pension Yojana (APY), National Pension Scheme (NPS) et cetera.</p>.<p>Since the ongoing benefits of the PMVVY are available to all the policies purchased before March 31, 2023, let us look at the nuts and bolts of the scheme:</p>.<p><strong>Features</strong></p>.<p>PMVYY is a government-subsidised pension scheme for senior citizens aged 60 years and more. The scheme is administered by LIC of India on behalf of the Union government. If you want to purchase the scheme online, you can log on to the website of LIC. While there is no maximum age limit for the scheme, the tenure of the scheme is 10 years.</p>.<p><strong>Rate of Interest</strong></p>.<p>As per the terms of PMVVY, the guaranteed rate of pension for policies sold during a year will be reviewed and decided at the beginning of each year by the Ministry of Finance, Government of India. The guaranteed rate of pension on policies sold during FY 2022-23 is 7.40 per cent per annum payable monthly (equivalent to 7.66 per cent p.a.). This rate of interest will be payable for the full policy term of 10 years for all the policies purchased till March 31, 2023 irrespective of changes in interest rate.</p>.<p><strong>Mode & quantum of pension payment</strong></p>.<p>The policyholder can choose a monthly/quarterly/half-yearly or yearly mode of payment for receiving a pension.</p>.<p>The first instalment of pension shall be paid after one year, six months, three months, or one month from the date of purchase of the same depending on the chosen mode of pension payment i.e. yearly, half-yearly, quarterly, or monthly respectively.</p>.<p>The amount of pension depends on the purchase price and mode of payment. For example, you can get the maximum monthly pension of Rs 9,250 on a purchase price of Rs 15 lakhs. If you opt for annual payment, the pension will be Rs 1,11,000 and the purchase price will be Rs 14,49,086. Incidentally, the maximum amount that an individual can invest under the scheme is capped at Rs 15 lakhs. Since the scheme operates as a pension plan, pension payment/purchase price is exempt from GST.</p>.<p><strong>Premature closure</strong></p>.<p>A policy taken under PMVVY can be surrendered anytime during its term under exceptional circumstances i.e when the pensioner requires money for the treatment of any critical or terminal illness of self or spouse. The surrender value payable under the scheme will be 98 per cent of the purchase price.</p>.<p>Loan facility</p>.<p>You can also avail loan facility of up to 75 per cent of the investment amount after the completion of three policy years. Loan interest will be recovered from the pension amount payable to you under the policy.</p>.<p><strong>PMVVY vs Senior Citizen Savings Scheme</strong></p>.<p>Like PMVVY, the Senior Citizen Savings Scheme (SCSS) is also a government scheme aimed at providing regular income to senior citizens. Individuals can invest a maximum amount of Rs 15 lakhs and the scheme has a tenure of five years, which can be extended for a period of three years. The scheme also offers an interest rate of 7.4 per cent payable quarterly. But the biggest advantage for a senior citizen is that he can claim tax benefits up to a maximum amount of Rs 1.50 lakhs under Section 80C of the Income tax act. While the SCSS scores over PMVVY in respect of tax benefits and one-time extension, PMVVY scores over SCSS over tenure and frequency of pension payment.</p>.<p>In the final analysis, if the objective of the government was to provide social security to elderly persons, the tenure of 10 years is baffling since the senior citizen has to fend for himself after maturity. Another drawback is the lack of tax benefits under the scheme on the investment amount. As interest rates are going up due to inflation, many banks are offering deposits at attractive rates. The government needs to revisit interest rates quickly.</p>.<p><em>(The author is a certified financial analyst, former banker and currently teaches at Manipal Academy of Higher Education, Bengaluru)</em></p>