Saving for the sunset years: Should you buy Pradhan Mantri Vaya Vandana Yojana?
NEWDELHI: The Pradhan Mantri Vaya Vandana Yojana (PMVVY) was formally launched on July 21 by Union finance minister Arun Jaitley. However, the scheme has been available for purchase since May 4, 2017. It aims to provide regular pension to senior citizens. We try to find out whether it is a good option to put in money, especially in this falling interest rate scenario.
WHO CAN BUY
PMVVY is a pension scheme exclusively for senior citizens—aged 60 years or more. There is no maximum age for entry. The scheme is currently open and those interested can invest in it till May 3, 2018.
Senior citizens can purchase it offline as well as online, through Life Insurance Corporation of India (LIC), which has been given exclusive rights to operate it.
The scheme provides an assured return of 8% to 8.30% per annum, depending on whether you choose to get your pensions on a monthly, quarterly, half-yearly or yearly basis. If you take the monthly option, the return is 8%; on the annual option, the return is 8.30%. The pension would be paid for a period of 10 years, every month, every quarter, every half-year or every year—depending on how the investor wants it.
The minimum purchase price for receiving pensions every month is ₹1.5 lakh, where a senior citizen will get a pension of ₹1,000 per month. Maximum purchase price for monthly pension is ₹7.5 lakh, which will fetch ₹5,000 per month. Importantly, this is the maximum amount that a family can invest under this scheme. This means, if two or more people from a family decide to opt for this scheme, their total investment cannot be more than ₹7.5 lakh. The family, for this scheme, comprises the pensioner, his or her spouse and dependants.
If a pensioner survives the policy term (10 years), purchase price along with final pension instalment shall be payable. The scheme also allows premature exit/withdrawal for treatment of any critical or terminal illness of self or spouse. On premature exit, 98% of the purchase price shall be refunded. On death of the pensioner during the policy term of 10 years, the purchase price shall be paid to the beneficiary.
SHOULD YOU BUY?
Given that the maximum pension that a family can earn per month under the scheme is ₹5,000—or ₹60,000 a year—it may not be attractive to many investors. “The scheme is for those with limited means, not for those who have a large chunk of retirement corpus to meet post-retirement expenses,” said Suresh Sadagopan, founder, Ladder7 Financial Advisories, a Mumbai-based financial planning firm. “Why would I suggest one more scheme to my clients? I would rather prefer five to six debt mutual fund schemes, with systematic withdrawal option.”
The scheme is at par with other schemes for senior citizens such as Senior Citizens Savings Scheme (SCSS), which offers a similar return of 8.3% per annum currently. Given that both scheme have a cap— ₹15 lakh for SCSS and ₹7.5 lakh for PMVVY—those who have a small retirement corpus can divide their investments between these schemes. In the current falling interest rate scenario, 8.3% annual return is a good return.