There are many investment schemes for senior citizens in the market. One good scheme — the Pradhan Mantri Vaya Vandana Yojana, or PMVVY — which gave pension benefits at a reasonable rate of return — closed on March 31, 2020.
Thankfully, in response to requests by senior citizens, which BusinessLine had also pushed for ( Give the seniors more time, dated April 3, 2020 ), the Centre has now extended the period of this scheme to March 31, 2023. However, there have been changes made to the scheme.
The PMVVY is run by the Life Insurance Corporation of India (LIC). You can buy the policy under this scheme either on the LIC’s website or physically, at one of its offices. The scheme could be a good fit for senior citizens (aged 60 years or more) who are looking for a regular income, and have exhausted their limit (₹15 lakh) in the Senior Citizens Savings Scheme offered by the post office and some banks.
In PMVVY, too, the maximum amount that a senior citizen can invest is ₹15 lakh. The amount has to be paid as a lumpsum with the option of payout from the scheme on a monthly, quarterly, half-yearly or yearly basis. There is no tax benefit under Section 80C of the Income Tax Act on PMVVY investments. Also, the amount received as regular interest/pension is taxable.
The scheme has a term of 10 years, after which, on maturity, you will get the purchase price with the last pension instalment. In case of death of the investor/pensioner during the term of the scheme, the purchase price will be returned to the nominee or legal heir.
Recent changes
Until March 2020, the rate of return on the PMVVY was 8 per cent (for the monthly payout option), which could go up to 8.3 per cent if the annual interest payout option is chosen. The recent changes announced by the Centre have capped the returns under the scheme at 7.75 per cent per annum, in line with the revised rate of returns for the Senior Citizens Savings Scheme. For FY21, the Centre has notified the return under PMVVY at 7.4 per cent.
This rate will be reset on April 1 every year, that is, for investments made in FY22 and FY23. The management fees for the scheme have been capped at 0.5 per cent per annum for the first year of scheme in respect of new policies issued, and for the next nine years, at 0.3 per cent per annum.
The minimum investment has also been revised to ₹1,56,658 (earlier, ₹1,44,578) for pension of ₹12,000 per annum and to ₹1,62,162 (earlier, ₹1,50,000) for getting a minimum pension amount of ₹1,000 per month under the scheme. So, for the monthly payout option, the rate of return for investments made in the scheme in FY21 works out to 7.4 per cent, while for the annual payout option, it works out to 7.66 per cent.
All the other conditions have been kept the same.
Scheme specifics
There are minimum and maximum investments for monthly, quarterly, half-yearly and yearly pension payouts. The minimum pension amounts across various periods are ₹1,000 per month, ₹3,000 per quarter, ₹6,000 per half-year and ₹12,000 per year. The maximum pension amounts payable under the scheme are ₹9,250 per month, ₹27,750 per quarter, ₹55,500 per half-year and ₹1,11,000 per year.
The minimum purchase prices for monthly, quarterly, half-yearly and yearly pension payouts are ₹1,62,162, ₹1,61,074, ₹1,59,574, and ₹1,56,658, respectively, according to LIC.
The pension amount ceiling is per senior citizen. That means the maximum pension amount will be the total on all the policies taken by the senior citizen under this scheme.
Depending on the pension payout periodicity that you have chosen, the first pension instalment will be paid one year, six months, three months or one month after you have purchased the policy from LIC under this scheme. The pension is paid out through NEFT or Aadhaar Enabled Payment System into your bank account.
Liquidity
The scheme offers a fair degree of liquidity. After three years of policy purchase, you can take a loan against the investment. This loan can be up to 75 per cent of the purchase price paid.
The rate of interest payable on the loan is determined periodically. The interest is due and recoverable from the periodical pension payouts. The principal is recovered from the payout when either the claim is made at the end of the 10-year period, or when the nominee or legal heir makes a claim on the death of the investor.
Another avenue that improves the liquidity is premature exit from the scheme under exceptional circumstances. These could be a critical or terminal illness of the investor or his/her spouse. The surrender value payable in such cases is 98 per cent of the lumpsum amount invested.