PM Vaya Vandana Yojna PMVVY 2020

Update till 10 June 2020. Pradhan Mantri Vaya Vandana Yojna or PMVVY is a Pension Scheme announced by the Government of India exclusively for the senior citizens aged 60 years and above which is available from 4^th May 2017. It was officially inaugurated by then FM Late Sh Arun Jaitley on 21/07/2017.

The Scheme can be purchased offline as well as online through Life Insurance Corporation (LIC) of India which has been given the sole privilege to operate this Scheme. Lic has named this scheme as Table no 842.

What is PMVVY?

Pradhan Mantri Vaya Vandana Yojna or PMVVY is immediate pension scheme for senior citizens. You can call it annuity plan for the central government as LIC is just the medium to distribute this scheme.

The features of the scheme are: (Rate is revised (in the below image) as mentioned above in the update)

• The PMVVY Plan provides an immediate pension for senior citizens 60 years and
  

  

• It can be purchased by paying a lump sum
• The plan provides for pension payments of stated amount for the policy term of 10 years, with the return of purchase price at the end of 10 years.
• Pension payment modes are available: Monthly / Quarterly/Half-yearly /Yearly
• The pension will be paid at the end of each period as per payment mode is chosen starts as early as next month if the monthly mode is chosen.
• On the death of the pensioner at any time during the term of 10 years, the purchase price will be refunded to the legal heirs/nominees.
• On survival of the pensioner to the end of the policy term of 10 years, Purchase price along with final pension installment shall be payable.
• No Medical examination is required as no insurance is done in the scheme.

What is the amount that needs to be paid?

The lump sum amount depends on the pension frequency (monthly, quarterly, half yearly or yearly) and also on the pension amount.

The minimum pension is Rs 1000 per month or Rs 12000 per year.

The maximum pension is Rs 10000 per month or Rs 120000 per year.

Minimum / Maximum Purchase Price and Pension Amount:

 Interest Rate for PMVVY

This plan is government subsidized pension scheme which will avail guaranteed 7.4% return in monthly mode and 7.66% return in yearly mode. Also, it has been decided to review the rate on an annual basis from April 1 of the financial year.

Following are the major benefits under the Pradhan Mantri Vaya Vandana Yojana (PMVVY):

• The scheme is exempted from Service Tax/ GST.
• On survival of the pensioner to the end of the policy term of 10 years, Purchase price along with final pension installment shall be payable.
• Loan up to 75% of Purchase Price shall be allowed after 3 policy years (to meet the liquidity needs). Loan interest shall be recovered from the pension installments and loan to be recovered from claim proceeds.
• The scheme also allows for the premature exit for the treatment of any critical/ terminal illness of self or spouse. On such premature exit, 98% of the Purchase Price shall be refunded.
• On the death of the pensioner (Suicide also included) during the policy term of 10 years, the Purchase Price shall be paid to the beneficiary.
• The ceiling of maximum pension is for a family as a whole, the family will comprise of the pensioner, his/her spouse, and dependents.
• The shortfall owing to the difference between the interest guaranteed and the actual interest earned and the expenses relating to administration shall be subsidized by the Government of India and reimbursed to the Corporation.
• Free look period, 15 days available from the date of receipt of policy bond if the policyholder is not satisfied with the “Terms and Conditions” of the policy.
• The pension will be paid through NEFT or Aadhaar Enabled Payment System.

Should you invest in PMVVY?

For senior citizens, very few schemes are left with the assured return. 7 -8% for next 10 years is not bad at all. It is far better than FD which currently is around 5%-7% for senior citizens.

The purchase price also does not change as per age. It is fixed for all age groups.

Ways to buy – Through LIC Agent and Online

Insurance intermediaries such as agents and brokers will get a commission of 0.1% on invested amount in a newly launched pension scheme for senior citizen called Pradhan Mantri Vaya Vandana Yojana (PMVVY).

As mentioned, LIC India distributes this scheme on behalf of the government.

In addition, the government has exempted this scheme from GST. This means, distributors selling this scheme will not have to pay GST on their commissions as well.

Senior citizens can also buy this scheme directly from the company’s website.

But the plan has few drawbacks too.

First, the pension is taxable. So if you are already getting a pension or in 20% or 30% rate, PMVVY will increase your income and hence the returns from the plan will come down due to tax implications.

Secondly, the amount Rs 1000/- or the maximum amount Rs 10000/- is too less. You cannot exceed RS 10000 as this is fixed for a family. In other words, no 2 or more senior citizen can take this plan in a family. If you do not have another source of income you cannot completely rely on this pension scheme. This means you have to look for another option for investments, so this increases documentation and monitoring. (With limit increasing to Rs 15 Lakh now in 2018 the pension will double)

Thirdly, what if the investor outlived the tenure? Tenure is just 10 years so majority people will have reinvestment risk after 10 years.

Fourth, the plan is not liquid. It can only be surrendered in exceptional cases like serious illness of self or spouse. So once invested liquidity is very limited.

Fifth, I think 8% taxable is a very low return considering the moderate portfolios that financial planner manage. One should aim higher post tax income and beat inflation by 4-5% in a moderate risk appetite portfolio. Alternate investments like MFs and tax-free bonds can be purchased to better the returns.

Share your views in the comments section below.