PMVVY, a good scheme for senior citizens

Satya Sontanam BL Research Bureau | Updated on February 27, 2020 Published on February 27, 2020

If you have exhausted the limit under the SCSS, go for PMVVY. Act quickly, the scheme closes on March 31, 2020

The Pradhan Mantri Vaya Vandana Yojana (PMVVY), a pension scheme launched by the government in May 2017 and operated by the Life Insurance Corporation of India (LIC), is closing on March 31, 2020.

The scheme was initially meant to be available for one year from launch, with an investment limit of ₹7.5 lakh per senior citizen. The Finance Ministry, in Budget 2018, increased the investment limit in the scheme to ₹15 lakh and extended the time period till March 31, 2020.

Contrary to expectations, the government, in Budget 2020, did not further extend the time limit to invest in PMVVY. So, there is just a one-month window now to invest in PMVVY.

If you are a senior citizen looking for a regular fixed income, you can consider investing in this scheme. Though it does not score over the post office small savings scheme for senior citizens (Senior Citizen Saving Scheme, SCSS), in terms of tax benefits and returns, you can consider it if you have already exhausted your investment limit in SCSS.

The nuts and bolts

Only those who are 60 and above can subscribe to the PMVVY. There is no upper age limit. The scheme has a policy term of 10 years during which the pension amount is paid.

The scheme requires the investment of a lump sum amount called purchase price initially, after which pension at regular intervals will be paid for 10 years. However, the payment will be terminated in case of death of the pensioner.

The whole purchase price will be paid on completion of the policy term of 10 years, or on the death of the pensioner, whichever is earlier.

The pensioner can choose either the amount of pension or the purchase price. These are further dependent on the frequency of pension payouts selected - monthly, quarterly, half-yearly or annual. For these payout options, the minimum pension amounts are ₹1,000 per month, ₹3,000 per quarter, ₹6,000 per half-year and ₹12,000 per year, respectively, while the maximum pension amounts are ₹10,000, ₹30,000, ₹60,000 and ₹1.2 lakh, respectively.

The pension payment will be through NEFT or Aadhaar-Enabled Payment System (AePS).

Investments should be commensurate to the amount of pension desired. The required investment amounts for the receipt of minimum pension amount as mentioned above are ₹1.5 lakh (in case of monthly payout option), ₹1,49,068 (quarterly), ₹1,47,601 ( half-yearly), and ₹1,44,578 (annual).

The maximum amount that can be invested in this scheme is ₹15 lakh (in case of monthly payout option), ₹14,90,683 (quarterly), ₹14,76,015 (half-yearly) and ₹14,45,783 (annual).

Effectively, the rate of return on investment ranges from 8 per cent to 8.3 per cent, depending on the mode of frequency selected by the subscriber. The longer the frequency of payout, the higher the return on investment. Note that the SCSS gives an annual return of 8.6 per cent with quarterly payment of interest. Investment in the SCSS is also eligible for tax deduction under Section 80C of the Income-Tax Act up to ₹1.5 lakh a year in the current tax regime.

The tax angle

Investment in PMVVY is not eligible for this tax break. The interest earned on both PMVVY and SCSS are taxable as per the individual’s applicable slab rates. However, senior citizens can get deduction under Section 80TTB in the current tax regime on interest on SCSS, of up to ₹50,000 a year.

Clearly, SCSS, with a lock-in period of five years (extendable by three more years), scores over PMVVY but it, too, has an investment limit of ₹15 lakh. A senior citizen couple can together invest up to ₹30 lakh.

If you have already exhausted the SCSS limit, the PMVVY is a good option to invest for regular fixed income. Here, too, a senior citizen couple can together invest up to ₹30 lakh.

One can subscribe to the PMVVY by visiting an LIC office or online, through LIC’s portal.

Pre-mature withdrawal

The investment in PMVVY is locked in for 10 years. However, the scheme allows premature exit during the policy term under exceptional circumstances including treatment of any critical/terminal illness of self or spouse. The surrender value or the refund of the purchase price payable in such cases is 98 per cent of the purchase price.

Loans can also be taken against the investment amount after the completion of three years of investment. The maximum loan that can be granted is 75 per cent of the purchase price.

The rate of interest charged for the loan amount shall be determined at periodic intervals. The interest on the loan is recovered from the pension amount payable under the policy. However, if the loan is still outstanding at the time of the scheme’s maturity, the outstanding amount is recovered from the proceeds at the time of exit.

Look-up period

Once you invest in the PMVVY, a free look-up period of 15 days (30 days if the policy is bought online) is allowed, during which you can withdraw from the policy by stating the reasons. If you choose to withdraw, the amount of purchase price deposited by you is refunded after deducting the charges on stamp duty and pension paid (if any).

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Published on February 27, 2020
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