Pradhan Mantri Vaya Vandana Yojana (PMVVY)

 Greetings,

We hope you found our previous post on the Married Women’s Property Act useful and informative. If you haven’t had a chance to read it yet, we’ve put it here so you don’t miss out.

What a lot of people don’t realize while planning out their retirement is that interest rates for developing countries go down as they progress and develop. If you were sitting around thinking people in the US, UK, Sweden, Switzerland, or any other first-world country for that matter, were raking in big bucks on money sitting in the bank, think again. In fact, in some developed countries like Denmark and Japan, for example, they have negative interest rates and it actually costs you money to use the banks. Additionally, the US interest rate FED is just 0.25% at the moment, down by 1.25% from March this year.

What this means for pensioners or people planning their retirement is that in addition to accounting for inflation, they also need to account for lower returns on money sitting in fixed deposits or bank accounts. India for example, had private banks offering up to 8.25% for fixed deposits in 2015 while the current offerings stand at about 5.15% with an extra 0.50% for senior citizens. That’s a pretty sharp drop and means that if you were counting on interest rates remaining constant, you now have to recalculate and reconsider your retirement options.

A good way to counter the effect of declining interest rates on your retirement plan is by investing in schemes that offer a fixed interest rate over a longer time frame, this way whatever the current interest rate may be, your investment keeps earning at a predetermined rate. As we mentioned before, since rates go down as a country develops, this is a good thing. One such investment option for senior citizens, in particular, is the Pradhan Mantri Vaya Vandana Yojana (PMVVY) government subsidized pension scheme.

While this scheme was initially announced a few years ago, it ended in March this year and was relaunched in May for a period of three financial years under new terms. In addition to a fixed interest rate over a period of ten years, this scheme also converts the interest into a pension that can be withdrawn monthly, quarterly, half-yearly, or annually. This is a great addition to your retirement portfolio as you can invest a maximum of fifteen lakhs per person which will provide you with a guaranteed monthly pension of Rs. 9,250/- for ten years. If you and your spouse invests fifteen lakhs each then you will receive a guaranteed monthly pension of Rs. 18,500/-

The cherry on the cake here is obviously the fact that in addition to ten years of fixed interest, you also get your principal amount back on maturation, making this a “win-win” situation. The rate of interest for policies purchased this current financial year will be 7.66%, while the interest rates for the remaining two years will be fixed as they commence. Life Insurance Corporation of India is the sole operator of this scheme which also includes a death benefit where as a beneficiary receives a refund of the purchase price in the event of your untimely demise. 

In conclusion, with an unprecedented amount of uncertainty in the world today, having a constant source of income for a decade is an invaluable asset, albeit a small one. It’s many drops of water that form an ocean and every bit counts when you’re planning for your retirement. One downside may be the fact that you need to be at least 60 years of age and you have the option to surrender this pension plan under extreme circumstances like a medical emergency for you or your dependents. However, after completion of three years, you can avail of a loan against this policy up to 75% of the purchase price. 

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