The Pradhan Mantri Vaya Vandana Yojana (PMVVY) has been extended by the government till 31st March 2023, but with a reduced interest rate of 7.4%.
If you have questions like – What is PMVVY, What is the interest rate on PMVVY, What is the maturity period of PMVVY, then all these would be answered in the post.
The PMVVY scheme has been extended by the Government of India a few times before also. But the last extension expired on 31st March 2020. After the latest extension, it is now available until March 2023. The reason for the extension is to provide support to senior citizens in this low-interest rate scenario. Many senior citizens (above age 60) are dependent on interest income to meet their regular expenses. So this extension will be helpful for them.
This post will highlight the changes made to Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2020-2023 this time and also provide you with all the information you need to know about Pradhan Mantri Vaya Vandana Yojana (PMVVY).
First, the major changes made to the scheme are:
- The scheme has been extended for 3 more years till 31st March 2023
- Annual rate of return % for Pradhan Mantri Vaya Vandana Yojana (PMVVY) has been reduced to 7.4%. This has been reduced from the earlier 8%.
- The interest rate of the PMVVY will have the option for annual review and reset of the assured rate of interest.
As you can see, there have been a few changes. But more or less, it remains the same fundamentally.
Moving on, let’s see some points about the PMVVY scheme:
- PM Vaya Vandana Yojana (2020 2023) is a simple, non-linked, non-participating plan offering guaranteed pension at a specified rate for 10 years.
- The scheme is available only via LIC of India. PMVVY is a pension scheme offered by LIC (Table 842) and gives guaranteed pension.
- The PMVVY scheme is available for purchase from 26 May 2020 to 31 March 2023. This is after the government extended the scheme for 3 more years.
- The scheme is only available to senior citizens above the age of 60 years.
- What is the duration of the PMVVY scheme? It has fixed maturity tenure of 10 (Ten) years.
- What is the interest rate of PMVVY scheme? The interest rates applicable for the new PMVVY scheme is 7.4%. But this rate is applicable only for those buying PMVVY in current FY 2020-21. As the option to revise rates has been introduced, the rates may be different in the next FY for those buying then. But once you buy a PMVVY at a specified rate (7.4%), the rate of pension remains applicable for the full 10 years and isn’t changed in between. Similarly, if someone had already purchased the original PMVVY at 8% for 10- years, then they will get a pension at 8% irrespective of the change in rates for the modified PMVVY scheme going forward.
- It is a simple system where the interest rate at the time of purchase of PVVY scheme is locked-in until the full 10-year maturity. Subsequent changes in the interest rate during those 10 years will not affect your pension or returns.
- What is the maximum investment amount in PMVVY? A maximum of Rs 15 lac per senior citizen can be invested in all the policies under this plan (originally this was at Rs 7.5 lac earlier). So if you and spouse both are senior citizens, then both can invest Rs 15 lac each, i.e. the two of you can invest a maximum of Rs 30 lacs in PMVVY schemes.
- What is the minimum investment amount in PMVVY? Depending on the chosen mode for pension pay-out, the minimum investment amount is decided. For example – For monthly mode – Rs 1,62,162. For quarterly mode Rs 1,61,074. For half-yearly mode – Rs 1,59,574 and finally, for yearly mode- Rs. 1,56,658.
- The plan is to be purchased by paying a lump sum upfront. And the pension mode is to be chosen at the time of investment i.e. how often do you wish to receive the pension monthly, quarterly, half-yearly or yearly.
- What is the maximum pension from PMVVY possible? Rs 9250 per month or Rs 27,750 per quarter or Rs 55,500 half-yearly or finally, Rs 1,11,000 on an annual payout.
- What is the minimum pension from PMVVY possible? The minimum pension is Rs. 1000 a month.
- An important thing to note here is the amount of pension in PMVVY is not dependent on age. This is generally not the case with pension /annuity plans which pay out pension based on the age of the plan purchaser.
A summary of what we discussed about the pension amount and the required investments (purchase amounts):
- How is the PMVVY pension taxed? Like your regular income and as per the tax slab of the pensioner in the year of receipt of pension.
- What about tax benefits at the time of purchase? There are no tax benefits under this policy. That is your investments in Pradhan Mantri Vaya Vandana Yojana (PMVVY) scheme does not provide tax deduction benefit under section 80C of the Income Tax Act. But the scheme is exempted from Goods and Services Tax (GST).
- What happens at maturity after 10 years? The purchase price will be returned. That is, the maturity benefit of PMVYY is that if the pensioner survives till the end of the 10-year policy term, the purchase price of the scheme along with final pension instalment will be paid out to the pensioner. And no tax has to be paid when the purchase price is returned at the time of maturity.
- This also highlights the fact that PMVVY provides pension (or better call it interest income) for only 10 years and not the full life.
- If the pensioner dies before completion of the 10-year period, the purchase shall be paid to the beneficiary (a nominee or legal heirs) of the PMVVY pensioner. No tax has to be paid if the purchase price is returned to the beneficiary at the time of death of PMVVY pensioner.
- Can you exit PMVVY prematurely before 10 years? It can be exited under exceptional circumstances like for treatment of critical or terminal disease of self or spouse. The surrender value of PMVVY scheme is 98% of the purchase price on premature exit. That is, there will be a penalty of 2% on premature exit.
- Loan facility on PMVVY? One can avail loan of up to 75% of the purchase price after completion of 3 policy years.
- How to buy Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2020 – 2023? The PMVVY can be purchased in both offline and online modes. You can visit LIC India’s website to make the purchase.
That’s about the main features and working of Pradhan Mantri Vaya Vandana Yojana (PMVVY).
Often the scheme is compared with other senior-citizen specific schemes. So let’s briefly compare PMVVY with SCSS (Senior Citizen Savings Scheme)
PMVVY Vs. SCSS
I have done a detailed post on differences between SCSS Vs PMVVY Which is better?. You can read that. For the sake of discussion, I am putting a few points for comparison between PMVVY and SCSS below:
- Currently, SCSS provides 7.4% while PMVVY provides 7.4% per annum. But the government has said that the interest rate of PMVVY will move forward in line with the interest rate of SCSS. So this will become a non-comparable point in coming years.
- But the interest rate on PMVVY is locked for 10 years at the time of purchase. But SCSS being part of small savings schemes, the SCSS interest rate can change every quarter.
- PMVVY is for 10 years while SCSS is for 5 years.
- For SCSS, you get tax benefits under Section 80C of the Income Tax Act. No tax benefit is available for investments in PMVVY. But interest income from both is taxed at the slab rate of the senior citizen.
- Both PMVVY and SCSS allow investment of up to Rs 15 lac each. So if both spouses are senior citizens, they can invest Rs 15 lac each in both schemes, i.e. a total of Rs 60 lac in PMVVY and SCSS.
- SCSS has an interest payment frequency of Quarterly. In PMVVY, you can choose from monthly, quarterly, half-yearly or even annual.
Both PMVVY and SCSS are very similar in intent. Few differences are obviously there. SCSS has a shorter lock-in of 5 years compared to 10 years for PMVVY. But then, that also means that there will be a reinvestment risk in SCSS to find a similar return yielding instrument at the end of 5 years.
So if someone vies that after 10 years, the rates will be lower than what they are now, then PMVVY is a better choice than SCSS. Or you can even consider using both of them.
Should You Invest In Pradhan Mantri Vaya Vandana Yojana 2023?
First, you need to be a senior citizen to do that. But that said, for someone who is above 60, having a guaranteed interest income for 10 solid years is a decent deal if you ask me. I am speaking from a general perspective. Individual requirements may require changing strategy.
But for those in lower tax brackets, this is a decent product. And if they use a well thought out combination of PMVVY and SCSS, then it can work well for them from pension interest income angle. As for those senior citizens who belong to higher tax bracket, they already have large enough income to be a part of the higher tax brackets. So PMVVY may not be the best option for them.
Having said that, what is uncomforting is that a large amount gets locked-in in one go if you purchase this product. And if I were a senior citizen with limited amount, I wouldn’t be very comfortable with that.
Nevertheless, PMVVY (Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a decent choice for senior citizens looking for options. But whether it is a good fit in a Solid Retirement Plan or not is something that needs to be checked at an individual level.
Its also possible that some extent of equity exposure would be required or a combination of SCSS, PMVVY, Debt Fund and Equity Funds may be parts of a chosen retirement plan which has some interest income, some pension income and some SWPs from debt funds.
So that is all you needed to know about Pradhan Mantri Vaya Vandana Yojana (PMVVY) 2023 and its benefits. PMVVY is government-backed long term pension interest income for senior citizens of India. The rate of return for PMVVY has been reduced to 7.4% in 2020-21 and the scheme has been extended until 31st March 2023.