Prime minister’s pension plan for senior citizens
Officially called Pradhan Mantri Vaya Vandana Yojana (PMVVY), this is the latest addition to a host of schemes named after the prime minister of India. A government-subsidised pension scheme, it has been conceived with the specific purpose of addressing the long-standing concerns of senior citizens (varisht nagarik) with regard to a pension plan where their savings are protected and minimum returns are guaranteed. PMVVY may just be the answer to a latent demand for an alternate, viable pension plan – one where senior citizens feel safe and secure in the knowledge that their savings are not eroded by market forces.
The plan (No. 842, unique identification number [UIN] 512G311V01) is available for one year, from 4 May 2017 to 3 May 2018. It is open for sale to Indian citizens who are 60 years or more of age.
Let's take a long look at the salient features:
• Sale is through Life Insurance Corporation of India offices/branches.
• There is no maximum age limit for entry.
• The pension period or policy term is 10 years.
• The pension will be payable to the pensioner
surviving during the policy term of 10 years.
• The plan provides for assured pension returns of 8 per cent per annum (8.30 per cent annualised).
• The minimum purchase price for entering this plan is Rs 144,578 (one time) for receiving pension on
a regular basis. The maximum purchase price is Rs 722,892 (one time).
• The minimum pension amount payable will be Rs 12,000 (Rs 11,999.97 to be exact) annually. The maximum amount will be Rs 60,000 (Rs 57,831.36 to be exact) annually.
• As of now, no income tax benefit is offered for this plan.
• Surrender value benefit is available. You can surrender this policy during the policy period under certain exceptional circumstances (for example, if you require money for treatment of a critical/terminal illness of self or spouse). Surrender value payable will be 98 per cent of purchase price.
• Assignment facility is available only against LIC for obtaining a loan.
• Loan facility is available on this plan after completion of three years’ term and the same will be restricted to 75 per cent of the purchase price. Loan interest will be recovered from pension amount payable under the policy.
• A ‘free look’ period of 15 days is available from the date of receipt of policy bond, if policyholder is not satisfied with the terms and conditions’ of the policy. For online purchase, the free-look period is of 30 days.
On survival of the pensioner during the policy term, pension in arrears shall be payable to him/her depending on the chosen mode of pension payment. The pensioner has the option to choose either the amount of pension or the purchase price.
On death of pensioner during the policy term, the purchase price shall be refunded to the nominee/legal heir.
On survival of pensioner till the end of the policy term, purchase price and the final pension instalment shall be payable.
What You May Be Wary of
• The amount is locked in for 10 years; so it may not be available if required urgently (other than in case of illness).
• The pension is not adjusted to inflation. The purchasing power of, say, Rs 6,000 may reduce to half in 10 years.
• There are no tax benefits on the pension you receive.
Thus, while PMVVY is a simple and safe product offering assured returns, and is backed by the government, one may want to look at other investments that offer higher returns, after doing due diligence.