Nischay Avichal
The comfort of your golden years isn’t quite complete without a source of regular guaranteed income. After all, both complement each other very well. Therefore, the need to look for safer and regulated products that assure regular inflow during retirement. With the SCSS being the prevalent choice for retirees in India, the Government launched a new pension scheme for retirees way back in 2016– the Pradhan Mantri Vaya Vandana Yojana. In this blog, we will look at the features, eligibility, returns, and other aspects of this scheme.
What is PMVVY? Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension scheme launched by the Government of India. Currently, the Life Insurance Corporation of India is the provider of this scheme. The scheme was earlier open till March 2020, which has been further extended till March 2023. The scheme currently offers an interest rate of 7.4% per annum compounded monthly, which is 7.66% effectively. The interest rate is reset every FY. However, the interest rate will remain constant for you for the entire tenure of the scheme.
How to invest? PMVVY is offered by the Life Insurance Corporation of India (LIC). You can approach the LIC website or one of the LIC offices to apply for this scheme. You’ll have to carry your photograph and KYC documents such as PAN and Aadhar. A cheque should be carried for making the investment.
Features:
Eligibility: Minimum age 60 years and no maximum limit
Investment Limit: PMVVY gives an option for annual, half-yearly, quarterly, and monthly pension payout. The minimum and maximum purchase prices under different modes of pension are:
- Yearly: Minimum–1,56,658 Maximum–14,49,086
- Half-Yearly: Minimum–1,59,574 Maximum–14,76,064
- Quarterly: Minimum–1,61,074 Maximum–14,89,933
- Monthly: Minimum–1,62,162 Maximum–15,00,000
Tenure: 10 years
Pension Limit:
- Under Yearly pension: Minimum–12,000 Maximum–1,11,000
- Under Half-Yearly: Minimum–6,000 Maximum–55,500
- Under Quarterly: Minimum–3,000 Maximum–27,750
- Under Monthly: Minimum–1,000 Maximum–9,250
Liquidity:
PMVVY allows premature exit to the pensioner for the treatment of any critical/terminal illness of self or spouse. In such a case, 98% of the deposit will be refunded.
However, the entire purchase price is refunded to the beneficiary in case of the death of the pensioner during the policy term of 10 years.
Loan Facility:
The loan facility under the scheme is available upon the completion of three policy years. The maximum loan amount is limited to 75 per cent of the deposit. The interest is recovered from the pension amount payable and is accrued per the frequency of pension payment. Further, the outstanding loan amount is retrieved from the claim proceeds at the time of exit from the scheme.
The interest rate to be charged for the loan amount is determined at periodic intervals. The interest rate was 9.5% p.a. for loans taken up to 30th April 2021
Tax treatment:
PMVVY investment is not eligible for any tax deductions. The pension income from the scheme is fully taxable as per the tax slabs applicable to you.
Final word
PMVVY is a great option for investors looking for guaranteed and regular income during their retirement life. However, the scheme doesn’t provide inflation protection, which is also a crucial aspect of retirement income. Inflation eats into your purchasing power, decreasing it over time and making it difficult to sustain your costs with the same income level. Hence, the importance of understanding the need for higher income as you move further into your retirement life and making provisions for the same.
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