India’s social security system is one of the weakest in the world. This makes many elderly people in India dependable on the younger members of their family. Often, older individuals are left with no option but to work at an age at which they ideally shouldn’t work to make a living. Addressing this pressing issue is important. The good thing is the Government seems to have identified this problem.

However, the sad part is the solution it has offered is too basic and doesn’t serve the purpose.

Recently, the Finance Minister launched Pradhan Mantri Vaya Vandana Yojana (PMVVY). The scheme is being promoted as a ‘pension plan for elderly’, and is available for purchase through Life Insurance Corporation (LIC). You can buy the scheme online as well as offline. If you read the fine print, you would realise, this ‘Yojana’ is nothing more than a 10-year fixed deposit scheme.

PMVVY is available only to those who have attained the age of 60. The scheme has an option of paying either monthly, quarterly, half-yearly, or an annual pension. Depending on the option you choose, it will pay you the interest (termed as ‘pension’ in this case) at a rate ranging from 8.0% p.a. to 8.3% p.a. There’s a pension ceiling of Rs 60,000 per annum, per family. Effectively it means the maximum investment amount is capped at Rs 7.5 lakh. The minimum investment is set as Rs 1,44,578. To know more about PMVVY, please click here. However, it would be prudent to avoid investing in this scheme.

Now let’s understand what makes PMVVY a poor choice
 

1. Despite it being a product for the elderly, it has a lock-in period of 10 years. The premature withdrawals are available for the purpose of critical and terminal diseases of self or spouse. Unfortunately, such withdrawals will attract the penalty of 2%.
    
2. Scheme information documents overtly state that the scheme is exempt from Goods and Services Tax (GST). While it remains silent about the taxability of the annuity (or the interest) part of scheme. In other words, the pension/interest is taxable.
    
3. The assured returns offered by PMVVY are on par with other senior citizen schemes and Small Savings Schemes (SSS). There’s no added incentive for investors to purchase annuities making a lump sum payment. This product defies all logic. Had it been offered a couple of years back, when interest rates were high and on the brink of collapse, it could have still made some sense. But, at this stage where interest rates are hovering around a decade-low level, PMVVY has little merit.
    

To avoid being dependent on your family in old age, you should plan your retirement when you are young. Ideally, the day you draw your first income-cheque is when you should start making provisions for retirement. Depending on your standard of living, risk appetite and existing portfolio; you should work out the personalised asset allocation and a retirement plan for you. And, stick to a plan to fulfil your retirement objectives. Instead of opting for pension schemes, you should invest in equity as well as debt mutual funds, and choose Systematic Withdrawal Plans (SWPs) to meet your post-retirement recurring expenses.

To get quick access to 7 High-Performing, Time-Tested Readymade Portfolios with a decade-long market-beating track record, here is PersonalFN's popular mutual fund research service at a massive discount 75%.Hurry it's an exclusive time-limited offer.

Add Comments

Comments
GANDHIROHITKUMAR@YAHOO.COM May 03, 2018 CAN NRI INVEST IN THIS PMVVY PLAN //?

 1