In 2017, the Govt. of India had introduced an assured-income pension plan for the senior citizens, known as the Pradhan Mantri Vaya Vandana Yojana or PMVVY.
The scheme, to be managed by LIC, was open for one year only till Mar'18. However, it was later extended by two years until Mar'20.
And now the Govt. has again extended the PMVVY scheme for three more years until March 2023. But there's one key change - the rate of return has been reduced from 8% to 7.4%.
Listed below are the salient features of PMVVY...
... and the all-important question - Is it a worthwhile investment vis-a-vis the other options?
One. It is a Single Premium Pension Plan, which starts paying pension with immediate effect.
Two. The pension is guaranteed at 7.4% per annum compounded monthly (effective annualized rate 7.66%) for the FY 20-21. The rate of return will be reset every year for the next new Financial Year.
Three. The minimum eligible age to apply is 60 years (however, there's no maximum age limit).
Four. PMVVY is a scheme with a 10-year tenure.
Five. It is open for investment until March 2023.
Six. Minimum pension is fixed at Rs.12,000 per annum [or Monthly: Rs.1000; Quarterly: Rs.3000; Half-yearly: Rs.6000]
Seven. Maximum pension is fixed at Rs.1.11 lakhs per annum [or Monthly: Rs.9250; Quarterly: Rs.27,750; Half-yearly: Rs.55,500]
Eight. The maximum investment permissible works out to Rs.15 lakhs.
Nine. The maximum and minimum limit on pension is for the family as a whole (i.e. self, spouse, and dependents).
Ten. The pension will be credited directly to the Savings Bank Account.
Eleven. Pradhan Mantri Vaya Vandana Yojana can be surrendered — Surrender Value 98% of Single Premium paid — under exceptional circumstances only e.g. medical treatment of critical illness of self/spouse.
Twelve. Loan up to 75% of the amount invested can be availed, after completion of three years of the policy period. The rate will be decided from time to time and interest payable will be deducted from the pension amount due.
Thirteen. Nominee or legal heirs receive the amount invested, in case of the death of the pensioner.
Fourteen. The amount invested is paid back at maturity when the pensioner survives the policy period of 10 years.
Fifteen. PMVVY enjoys no tax benefits at all (i.e. no tax deduction at the time of investment like sec 80C, plus pension is fully taxable income).
Sixteen. Unlike typical pension plans, under PMVVY the pension payable is not dependent on the policy buyer's age... it is constant whatever may be the age of the person.
Seventeen. No medical examination is required.
In short, though Pradhan Mantri Vaya Vandana Yojana is classified as a Pension Plan, for all practical purposes it is nothing but a Fixed Deposit.
So, in this particular case, you can safely ignore my earlier warning 7 reasons why Single Premium insurance is a stupidity.
And, you can also ignore my arguments as to Why I don't like Annuity Plans because (a) only a limited amount can be invested and (b) the investment is returned back after the specified period.
Moreover, it is giving a decent 7.66% p.a. as safe and assured returns on an annualized basis.
This kind of interest rate is somewhat rare to get from banks nowadays. Plus it is marginally better than the same rate offered by the Senior Citizen Savings Scheme (monthly compounding vs quarterly compounding). Hence, one can surely invest a small portion of one's corpus in PMVVY (to the extent one can comfortably lock-in the money for 10 years).
By the way, PMVVY is not supposed to be the sole or major source of income for the pensioner. Rather, it should be seen as one more nice addition to one's total portfolio of investment options available after retirement (such as Fixed Deposits, Tax-Free Bonds, Post Office Schemes, Debt Mutual Funds, Non-Convertible Debentures, etc.).
Concluding, Pradhan Mantri Vaya Vandana Yojana is a good scheme for the elderly senior citizens... of age 60 and above... who desire to earn some safe, assured, and regular income without too much of hassles.
In fact, I think this is a good investment to gift to our senior citizen parents.
NOTE
Depending on the frequency and amount of pension desired, the Single Premium amount payable is as under:
a) Monthly: Min Rs.1,62,162 for Rs.1000 and Max Rs.15,00,000 for Rs.9250
b) Quarterly: Min Rs.1,61,074 for Rs.3000 and Max Rs.14,89,933 for Rs.27,750
c) Half-yearly: Min Rs.1,59,574 for Rs.6000 and Max Rs.14,76,064 for Rs.55,500
d) Annual: Min Rs.1,56,658 for Rs.12,000 and Max Rs.14,49,086 for Rs.1.11 lakhs
The scheme, to be managed by LIC, was open for one year only till Mar'18. However, it was later extended by two years until Mar'20.
And now the Govt. has again extended the PMVVY scheme for three more years until March 2023. But there's one key change - the rate of return has been reduced from 8% to 7.4%.
Listed below are the salient features of PMVVY...
... and the all-important question - Is it a worthwhile investment vis-a-vis the other options?
One. It is a Single Premium Pension Plan, which starts paying pension with immediate effect.
Two. The pension is guaranteed at 7.4% per annum compounded monthly (effective annualized rate 7.66%) for the FY 20-21. The rate of return will be reset every year for the next new Financial Year.
Three. The minimum eligible age to apply is 60 years (however, there's no maximum age limit).
Four. PMVVY is a scheme with a 10-year tenure.
Five. It is open for investment until March 2023.
Six. Minimum pension is fixed at Rs.12,000 per annum [or Monthly: Rs.1000; Quarterly: Rs.3000; Half-yearly: Rs.6000]
Seven. Maximum pension is fixed at Rs.1.11 lakhs per annum [or Monthly: Rs.9250; Quarterly: Rs.27,750; Half-yearly: Rs.55,500]
Eight. The maximum investment permissible works out to Rs.15 lakhs.
Nine. The maximum and minimum limit on pension is for the family as a whole (i.e. self, spouse, and dependents).
 |
| A worthwhile investment option for Senior Citizens. |
Ten. The pension will be credited directly to the Savings Bank Account.
Eleven. Pradhan Mantri Vaya Vandana Yojana can be surrendered — Surrender Value 98% of Single Premium paid — under exceptional circumstances only e.g. medical treatment of critical illness of self/spouse.
Twelve. Loan up to 75% of the amount invested can be availed, after completion of three years of the policy period. The rate will be decided from time to time and interest payable will be deducted from the pension amount due.
Thirteen. Nominee or legal heirs receive the amount invested, in case of the death of the pensioner.
Fourteen. The amount invested is paid back at maturity when the pensioner survives the policy period of 10 years.
Fifteen. PMVVY enjoys no tax benefits at all (i.e. no tax deduction at the time of investment like sec 80C, plus pension is fully taxable income).
Sixteen. Unlike typical pension plans, under PMVVY the pension payable is not dependent on the policy buyer's age... it is constant whatever may be the age of the person.
Seventeen. No medical examination is required.
In short, though Pradhan Mantri Vaya Vandana Yojana is classified as a Pension Plan, for all practical purposes it is nothing but a Fixed Deposit.
So, in this particular case, you can safely ignore my earlier warning 7 reasons why Single Premium insurance is a stupidity.
And, you can also ignore my arguments as to Why I don't like Annuity Plans because (a) only a limited amount can be invested and (b) the investment is returned back after the specified period.
Moreover, it is giving a decent 7.66% p.a. as safe and assured returns on an annualized basis.
This kind of interest rate is somewhat rare to get from banks nowadays. Plus it is marginally better than the same rate offered by the Senior Citizen Savings Scheme (monthly compounding vs quarterly compounding). Hence, one can surely invest a small portion of one's corpus in PMVVY (to the extent one can comfortably lock-in the money for 10 years).
By the way, PMVVY is not supposed to be the sole or major source of income for the pensioner. Rather, it should be seen as one more nice addition to one's total portfolio of investment options available after retirement (such as Fixed Deposits, Tax-Free Bonds, Post Office Schemes, Debt Mutual Funds, Non-Convertible Debentures, etc.).
Concluding, Pradhan Mantri Vaya Vandana Yojana is a good scheme for the elderly senior citizens... of age 60 and above... who desire to earn some safe, assured, and regular income without too much of hassles.
In fact, I think this is a good investment to gift to our senior citizen parents.
NOTE
Depending on the frequency and amount of pension desired, the Single Premium amount payable is as under:
a) Monthly: Min Rs.1,62,162 for Rs.1000 and Max Rs.15,00,000 for Rs.9250
b) Quarterly: Min Rs.1,61,074 for Rs.3000 and Max Rs.14,89,933 for Rs.27,750
c) Half-yearly: Min Rs.1,59,574 for Rs.6000 and Max Rs.14,76,064 for Rs.55,500
d) Annual: Min Rs.1,56,658 for Rs.12,000 and Max Rs.14,49,086 for Rs.1.11 lakhs
Please note - Once chosen, the option cannot be altered.
