TOWARDS A STEADY PENSION

The new Pradhan Mantri Vaya Vandana Yojana offers a fixed 8 per cent return, if you’re prepared to stay invested for 10 years

At a time when interest rates on bank deposits are down, the government has offered senior citizens an alternative option—a new pension plan. The Pradhan Mantri Vaya Vandana Yojana (PMVVY), sold by the Life Insurance Corporation of India, offers a fixed annual return of 8 per cent for 10 years.

When to invest

The scheme will remain open until May 3, 2018, for investment by individuals over 60 years of age. It can even be purchased online.

Pension cycle

Investors can choose to receive their pensions on a monthly, quarterly, half-yearly or yearly basis. There is a minimum and maximum amount one can invest, depending on the payment cycle. For example, to get the minimum pension of Rs 1,000 per month, the investor has to put in Rs 1.5 lakh. To receive the same amount on an annual basis—Rs 12,000—the investment required is about Rs 1.45 lakh.

Similarly, to get the maximum pension of Rs 5,000 per month, one needs to invest Rs 7.5 lakh. To receive the same pension annually—Rs 60,000—the required investment is about Rs 7.23 lakh.

Premature withdrawal

An early exit from the investment is allowed only if the investor or his/ her spouse needs the money for treatment of a terminal or critical illness. Also, in case of a premature withdrawal, only 98 per cent of the amount invested will be refunded. However, if the pensioner dies during the policy term of 10 years, the purchase price will be refunded to the beneficiary.

Maturity proceeds

The pensioner will get the amount invested with the last pension instalment.

Loan facility

The scheme allows the pensioner to apply for a loan three years after investment, and up to 75 per cent of the value of the investment.

Should you buy?

With the Senior Citizen Savings Scheme (SCSS) offering an interest rate of 8.3 per cent, is PMVVY a good option? Experts say that since bank deposit rates are falling, it makes sense to invest in the scheme, provided one is ready to lock in the money for as long as 10 years. With a tenure of five years, the SCSS has a shorter lock-in, but unlike PMVVY, the interest rate offered is subject to quarterly revision. However, one can invest much more in the SCSS—up to Rs 15 lakh, which is double the PMVVY limit. Do remember that the interest earned from both schemes is taxable.