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Should I As A Senior Citizen Opt PMVVY Over SCSS, Bank FDs & Annuity Plans?

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Senior Citizens Savings Scheme (SCSS), bank FDs, and the Pradhan Mantri Vaya Vandana Yojana (PMVVY) are some of the common investment opportunities available to the senior citizens. PMVVY is provided by Life Insurance Corporation of India (LIC) whereas SCSS is provided by post office and banks. Special government schemes, rather than bank deposits or debt mutual funds, come in handy for seniors because they deliver excellent returns with security. However, we have here analysed the latest Pradhan Mantri Vaya Vandana Yojana (PMVVY) and equate it to other alternatives to make your personal finance more attractive as a senior citizen.

A glance at Pradhan Mantri Vaya Vandana Yojana (PMVVY)

A glance at Pradhan Mantri Vaya Vandana Yojana (PMVVY)

The LIC is the only organisation that provides PMVVY, a guaranteed pension fund. It is only available to those who have exceeded the age of 60 and ensures regular pension benefit payments on a weekly, quarterly, half-yearly, or yearly basis. PMVVY was revised and extended until March 31, 2023. With 7.4 percent interest rate the return of this scheme is the same as the post office Senior Citizen's Savings scheme, which implies that you'll get a 7.4% annual return for the next ten years if you invest in PMVVY before March 2021. The minimum and maximum investment caps set by PMVVY are Rs 1.56 lakh and Rs 15 lakh. The plan provides a ten-year guarantee on pension benefits, as well as a return of principal upon maturity. Beneficiaries can claim the principal if the investor dies within ten years. If you or your spouse suffers from a serious or fatal illness, you can exit early by paying a 2% penalty on the principal. Even loans are open to borrowers up to 75 per cent of the contribution under this scheme. Apart from the GST exemption on principal, the scheme has no tax advantages.

New rules under PMVVY
 

New rules under PMVVY

The lowered pension rates are the most significant change in the current updated edition. The interest rate on the investment in the adjusted PMVVY will be lower than before. Unlike the older edition of PMVVY, the interest rate in the updated PMVVY will fluctuate depending on the financial year (FY) in which the deposit has been made by the depositor. The policy lasts ten years, and the government has fixed an interest rate of 7.4 per cent, on deposits made from FY 20-21 to March 31, 2021. The government will notify the PMVVY interest rate at the start of each FY for contributions made in the next two fiscal years i.e. 2021-22 and 2022-23.

Maximum and maximum purchase price under PMVVY

Maximum and maximum purchase price under PMVVY

The minimum and maximum pensions available under the scheme are described below:

Mode of Pension Monthly Quarterly Half-yearly Yearly
Minimum purchase price Rs. 1,62,162/- Rs. 1,61,074/- Rs. 1,59,574/- Rs. 1,56,658/-
Maximum purchase price Rs. 15,00,000/- Rs. 14,89,933/- Rs. 14,76,064/- Rs. 1,449,086/-
Minimum and maximum pension benefit available under PMVVY

Minimum and maximum pension benefit available under PMVVY

The minimum and maximum pension amounts available under the plan are listed below:

Mode of Pension Monthly Quarterly Half-yearly Yearly
Minimum pension Rs. 1,000/- Rs. 3,000/- Rs. 6,000/- Rs. 12,000/-
Maximum pension Rs. 9,250/- Rs. 27,750/- Rs. 55,500/- Rs. 1,11,000/-
PMVVY vs Annuity Plans

PMVVY vs Annuity Plans

Immediate annuity plans are sold by LIC and other insurers, and they enable you to get a lifetime pension with a lump sum purchase price. They are outperformed by the PMVVY in terms of pension payments. For example, a 60-year-old who purchases LIC's Jeevan Akshay VII will earn an annual pension of Rs 71,210 compared to Rs 76,600 under PMVVY. He will earn Rs 54,900 under Jeevan Shanti, which allows him to delay his pension for a year. The PMVVY's 10-year lock-in can attract those preferring liquidity more than the lifetime lock-ins of other immediate annuity plans. GST is not levied on PMVVY, but it is levied on immediate annuity plans at 1.8 per cent of the purchase price. The PMVVY, on the other hand, has certain pitfalls. Your monthly pension is reduced to Rs 9,250 owing to a cumulative contribution cap of Rs 15 lakh. For all subscribers above the age of 60, PMVVY provides the same pension amount. Pension premiums increase sharply with age in other immediate annuity policies. A 70-year-old will get a 30% higher pension under Jeevan Akshay VII than a 60-year-old with the same purchase price.

PMVVY vs SCSS

PMVVY vs SCSS

The SCSS from India Post enables seniors over 60 to deposit up to Rs 15 lakh and earn a 7.4% annual promised payout. Those over the age of 55 who have taken the VRS or who have retired can put their retirement funds in the scheme. The government changes SCSS interest rates on a quarterly basis. Initial contributions are liable for section 80C benefits, and the scheme has a 5-year lock-in duration. The interest is subject to taxation. The plan allows for early withdrawal, but there is a penalty. SCSS comes with a 5-year lock-in and can enable you to secure better rates than PMVVY. SCSS also provides premature withdrawal in case of emergency needs. The 80C benefit will assist seniors in meeting their tax-saving priorities while still maintaining a stable income. SCSS does not have a monthly pension and does not make loans available. SCSS and PMVVY earnings, on the other hand, are taxed as per your slab limit.

PMVVY vs Bank Deposits

PMVVY vs Bank Deposits

Currently, some leading banks deliver rates of around 5 to 6 percent on one to five-year deposits and 7 to 7.5 percent is offered by small finance banks. PMVVY, on the other hand, is better than small finance banks since it is backed by the LIC and the government. You will also get fixed pension payouts for the next ten years without having to think about rate fluctuation. In the current interest climate, parking in bank deposits for up to one year will help you benefit immediately from a higher yield. However, considering the current PMVVY rate of 7.4% and leading bank deposit rates, it may take some time for deposit rates to come back on track.

Our take

Our take

A senior citizen can prefer investing in both PMVVY and SCSS after making a distinction rather than just one. Because the requirements can vary, don't consider one to be smarter than the other. Both of these are government-backed and provide a guaranteed return to satisfy regular income requirements. PMVVY has a longer lock-in period than SCSS, but SCSS provides income tax benefits, so the decision between the two investment opportunities should be focused entirely on the investor's needs. In addition, though a guaranteed rate of return of 7.40 per cent p.a. will be paid monthly, equating to 7.66 per cent per year over the period of ten years in PMVVY, the interest rate in SCSS is updated on a quarterly basis. After five years, the SCSS account can be extended for another three years, although the contributions in the extension duration do not gain interest. SCSS generates a tax advantage under Section 80C. That being said, under PMVVY, there is no tax gain. Some senior citizens can choose to consider a fixed deposit in a bank, as some banks give senior citizens interest rates as high as 7.75 per cent. The DICGC insures senior citizens who invest in FDs up to Rs 5 lakh in one bank.

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