In a falling interest rate regime and with the withdrawal of 7.75% RBI savings bonds, as it is the options left for retired lot to keep their capital safe and at the same time receive steady income becomes a difficult task altogether.
The pension scheme administered exclusively by the Life Insurance Corporation (LIC) is for individuals who have some ready cash with them as there is minimum pay out for a monthly or annual pension.
Simply, to say if over the tenure of the scheme i.e. of 10 years, one wants to receive Rs. 12000 on an annual basis, you would need to shell out a minimum of Rs. 1,56,658 and the amount in case of opt of pension scheme payment on monthly mode, the premium amount shall go higher up to Rs. Rs 1,62,162 Notably, this is the minimum payment required for receiving Rs. 1000 pension month on month for 10 years.
Unlike avenues like SCSS, the contribution is not allowable as deduction as part of Section 80 C. Further the pension received is added to the individual's total income and taxed as per the applicable slab rate.
Interest rate risk:
Due to the longer tenure, if you park your investible surplus in the instrument at the current rate of 7.66 per cent per annum, your money will be locked at this rate. And so even if the rates trend on the higher side, you will not be able to tap the opportune. Senior citizens on the other hand will be better off taking SCSS route and get an annual rate of 7.4% on quarterly payout option. Also, here the term is of 5 years and so investors will get the scope to review their investment after a break of 5 years.
In PMVVY the invested amount in the scheme can be withdrawn only in emergency situation when one is looking for critical ailment treatment for self or spouse.
It is another disadvantage and if you do not want to go for it, you can still consider investment in Post Office MIS that fetches a monthly pay-out of 6.6%, which on annual pay-out turns to be 6.8%. But here there is a investment cap of up to Rs. 4.5 lakh per account. In a joint name, the investment can be up to Rs. 9 lakhs.
Other options for senior citizens
This too can work wonders as some of the banks such as those from the private space and small finance banks are currently offering higher interest rate for shorter tenure. It is here reiterated that in the aftermath of PMC Bank crisis, deposit insurance has been hiked from Rs. 1Rs 1 lakh to Rs 5 lakh.