PMVVY (Pradhan Mantri Vaya Vandana Yojana) 2017: Pension Scheme for Senior Citizens

Pradhan Mantri Vaya Vandana Yojana - PMVVY 2017

Pradhan Mantri Vaya Vandana Yojana – PMVVY 2017

Our Prime Minister had announced a new Pension Scheme for Senior Citizens offering 8% returns for 10 years in December 2016. The proposal was also stated in Budget 2017. This has finally been launched on May 4, 2017 with the name of Pradhan Mantri Vaya Vandana Yojana 2017-18 (PMVVY).

In this post we review PMVVY and check if senior citizens should invest into it?

Salient Features:

  • Minimum age for investment is 60 years
  • There is no Maximum age for entry
  • It gives return of 8% compounded monthly. So its equivalent of 8.30% annually.
  • You can choose to receive pension monthly, quarterly, half yearly or annually
  • The pension payment shall be through ECS/NEFT only
  • On death of the policy holder, the premium is returned back to the nominee
  • The plan is available for only 1 year i.e. from May 4, 2017 to May 3, 2018
  • The premium is exempted from GST
  • LIC Plan Number: 842
  • UIN: 512G311V01

Download:The ultimate ebook guide to Save Tax for FY 2017-18

Purchase Price and Pension:

The table below gives the minimum/maximum purchase price and the respective pension that one would receive for 10 years. You can buy anything in between (including both amounts).

Pradhan Mantri Vaya Vandana Yojana - Purchase price and Pension

Pradhan Mantri Vaya Vandana Yojana – Purchase price and Pension

The maximum limit above is for one family. Family here means spouse and the dependents.

Also Read:  Best Tax Saving Investments u/s 80C

Surrender Value:

The policy can be surrendered under exceptional circumstances like money required for the treatment of any critical/terminal illness of self or spouse . The Surrender Value payable shall be 98% of Purchase Price.

Loan:

Loan facility is available after completion of 3 policy years. The maximum loan that can be granted shall be 75% of the Purchase Price. The rate of interest to be charged for loan amount would be determined from time to time by LIC. Loan interest will be recovered from pension amount payable under the policy.

Also Read: 13 Investments to Generate Regular Income

The good:

  1. This is a simple product with a guaranteed return
  2. The scheme is guaranteed by Government of India and is managed by LIC. So it has safety of highest level.
  3. As the economy develops the interest rates come down. Hence it’s a good product to lock 8% interest rates for 10 years. However banks too offer fixed deposit tenure for 10 years.
  4. The policy can also be surrendered before maturity for treatment of illness.
  5. 75% Loan against policy can be a good thing for emergency liquidity needs.

The Bad:

  1. The pension you receive is taxable. This would be added to your income and taxed at your marginal tax rate, similar to fixed deposits. 
  2. The amount is locked-in for 10 years, so the money may not be available if required urgently (other than in case of illness)
  3. The pension is not adjusted to inflation. Assuming inflation at 7%, the purchasing power of Rs 5,000 would reduce to Rs 2,500 in 10 Years.

Also Read: 25 Tax Free Incomes & Investments in India

How to Buy?

You can check the details with you LIC agent or LIC office.

Alternate Approach: Investments offering more than 8% for Senior Citizens

There are few investments which still offer more than 8% returns for senior citizens. You must look into the same before committing your funds to Pradhan Mantri Vaya Vandana Yojana.

1. Ratnakar Bank offers 8.0% for senior citizens for 2 to 3 years deposit.

The added advantage is you can withdraw the amount anytime without any penalty. RBL does not levy penalty on pre-mature withdrawal of fixed deposit for senior citizens.

Deutsche Bank offers 8.25% for 5 year fixed deposit.

Also Read: Best Interest Rate on Senior Citizens Bank Fixed Deposits

2. NCDs/Bonds listed on Stock exchange. Some examples:

  • M&M Financial Services (AAA rated) has yield of 8.64% and residual maturity of 9.11 years
  • Edelweiss Housing Finance Ltd (AA+ rated) has yield of 9.71% and residual maturity of 9.49 years
  • Reliance Home Finance Ltd (AA rated) has yield of 9.51% and residual maturity of 14.69 years

The problem is the liquidity for these bonds are low and hence it’s difficult to buy/sell. However you can buy easily when they are issued.

Also Read: Latest NCD open for subscription

3. Tax Free Bonds listed on Stock Exchanges

PFC, HUDCO, NABARD, IRFC etc had issued tax free bonds in the past and are available on exchanges with yields in the range of 6.44%. The bonds have residual maturity of 10 to 15 years. As the interest received is tax free, these turn out to be better investments for senior citizens in highest tax bracket. The interest payout is annual. Also all the companies are backed by Government of India and also AAA rated – hence safe for investment.

4. Senior Citizens Saving Scheme

Senior Citizens Saving Scheme offers 8.3% interest which is payable quarterly. This too is backed by Government of India and so is safe. The problem is you can lock-in your amount only for 5 years.

Also Read: All about Senior Citizens’ Savings Scheme

5. DHFL Aashray Deposit Plus

DHFL is housing finance company and is rated AAA. It offers 8.25% to senior citizens for fixed deposit up to 10 years. You can choose to get interest monthly, quarterly, half-yearly or yearly.

6. Debt Mutual Funds

Regular income can be generated by investing and then using SWP (Systematic Withdrawal Plan) to generate regular income. This is usually more tax efficient than fixed deposits. Also the returns are closer to bank fixed deposits.

Should you invest in PMVVY:

I think Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a good and simple product especially for aged people looking for regular income after retirement. But there are other investments as listed above which offer more returns. You must evaluate those before locking your money in the pension plan.

24 thoughts on “PMVVY (Pradhan Mantri Vaya Vandana Yojana) 2017: Pension Scheme for Senior Citizens

  1. PARTHASARATHY says:

    would like to invest monthly Rs.30000 till the end of the scheme PMVVY.Is it possible or only one time investment is allowed

  2. PARTHASARATHY says:

    Dear Amit
    My wife has invested in Jeevan Varishta pension scheme in 2015 and getting Rs.60000 anually.
    Now I am interested to take PMVVY . is it permissible as it is with in the family.

  3. SHIRISH DHANKAR says:

    Regarding 143(1) clarification against 80C – Educational fees not deduct in 16 A, So how to file clarification

  4. SHIRISH DHANKAR says:

    My son’s Educational fee not add in 16A, So how clarify 143(1)

  5. Dear sir

    Thanks for ur valuable articles..
    I want to know that my parents who are senior citizen can invest in pradhanmatri vaya vandna yojna seprately.
    I mean my mother can invest for her pension and my father too can invest for his pension..or there is any rule that only one person either husband or wife can invest.
    Plz clear my doubt.

    Thnks
    Prabha

    • Ceiling of maximum pension is for a family as a whole i.e. total amount of pension under all the policies allowed to a family under this plan shall not exceed the maximum pension limit. The family for this purpose will comprise of pensioner, his/her spouse and dependents.

      So both can invest separately but the total pension paid to both combined cannot exceed Rs 60,000 annually.

  6. AASHUTOSH ODHEKAR says:

    Is this plan eligible for sec 80 (C) or not/

  7. Mrs Jaya Gupte says:

    I am a family pensioner of Government of India. I want to know that whether the pension received from PMVVY scheme of LIC will be treated as interest on my investment or second pension in my case, as the family pension rules state that any another pension will disqualify me from getting the existing family pension.

    • PMVVY is an annuity plan. Though named pension its NOT that but a product from LIC which would have NO impact on your existing family pension. So ahead with PMVVY, in case it suits you.

  8. Yogendra singh says:

    Dear Amit, i am a sr .citizen If we added the arear of Pension to the present income, it will comes in the range of 10% S.charge.Can we reduce income by deducting previous year arear income with depositing the tax

  9. Nirav Gandhi says:

    Dear Amit,

    Is pension taxable ….. ?? I m looking for scheme where i can get around 8% interest and with no taxe on interest or pension . kindly advise.

    • Yes most pensions including the one in PMVVY is taxable. I had mentioned avenues where senior citizens can get more than 8% returns but that’s before tax. After tax 8% with safety may not be possible in present circumstances.

  10. Is it possible to open a joint account in the name of husband and wife, if so can it continue after death of husband or wife for the left out period of 10 years.

  11. Dear Amit, if a couple is already getting pension from central govt. and annuity from LIC after pension commutation, and has also exhausted all other avenues like 30 lakhs in SCSS, can they still invest in PMVVY? Of course, 10 yrs. is too long a period and the post-tax returns are hardly attractive, but the safety factor may attract some couples.

    • Yes you can invest in PMVVY even if you have pension from government and investment in SCSS.

      • Dear Amit, I heard from a lic person that, if a person had a VARISHTA PENSION BIMA YOJANA than that person is not eligible for PMVVY scheme. Is it true.

        • There is nothing mentioned on this sort in the scheme document. I think the below line is causing confusion:

          Ceiling of maximum pension is for a family as a whole i.e. total amount of pension under all the policies allowed to a family under this plan shall not exceed the maximum pension limit. The family for this purpose will comprise of pensioner, his/her spouse and dependents.

          As per my interpretation the limit is for this plan and does not say anything about other plans!

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