Pradhan Mantri Vaya Vandana Yojaan

Introduction:

The Government of India takes various initiatives to uplift the standard of living of its people. Basic needs become essential when you are 62+, and you cannot earn or don’t wish to work anymore and want to enjoy your retirement life. This is why the concept of pension is important to understand.

PM Vaya Vandana Yojana

This is a pension scheme introduced by the Government of India. The government has modified the rate at which pensions would be paid. The scheme was available until March 31, 2020, and extended for three years (i.e., from April 01, 2020, to March 31, 2023). This means the pensioner can avail of the scheme only before March 31, 2023.

What is the pension scheme under PM Vaya Vandana Yojana?

• The concept is simple. The pensioner has earning resources (job or business) now. So, he can invest at this point, earn during the interim period, and redeem the investment. The following timeline explains the pension process:

• The pensioner’s age should be 60 years (completed) when taking the policy to be eligible for the scheme. There is no maximum age limit for the policy.
• The policy term would be ten years.
• The investment amount is called the purchase price of the pension policy. The pensioner may choose the receipt of the pension frequency either monthly, quarterly, semi-annually, or annually. The pensioner has to pay the purchase price in lump sum as per the pension plan he chooses.
• Accordingly, the purchase prices to be paid, minimum pension to be received by the pensioner, and maximum pension to be received by the pensioner is specified below:

In case the pensioner wants to invest a lower amount, the details are as follows:

Mode of Pension	Pension amount to be received by pensioner (₹)	Minimum Purchase Price (₹)
Yearly	12,000	1,56,658
Half-yearly	6,000	1,59,574
Quarterly	3,000	1,61,074
Monthly	1,000	1,62,162

This means the minimum investment amount is Rs. 1,56,658

In case the pensioner wants to invest a higher amount, the details are as follows:

Mode of Pension	Pension amount to be received by pensioner (₹)	Maximum Purchase Price (₹)
Yearly	1,11,000	14,49,086
Half-yearly	55,500	14,76,064
Quarterly	27,750	14,89,933
Monthly	9,250	15,00,000

This means the maximum investment amount is Rs. 15,00,000

• The pensioner can choose his/her preferred frequency of pension amount and invest accordingly.
• The scheme can be availed offline or online only through the LIC (Life Insurance Corporation) since LIC is the sole agent for this scheme. For an online application, you can visit https://licindia.in/.

What is the interest rate under the scheme?

• This scheme is targeted to protect elderly persons against a fall in interest income as per the market conditions prevailing at that time. So, this scheme assures interest rates.
• The Government of India will review and decide the rate of pension for the policies at the start of the financial year. For the FY ended on March 31, 2021 (i.e., FY 20-21), the scheme assures interest rate as follows depending on the frequency of pension:

Mode of Pension	Effective ROI (per annum)
Yearly	7.66%
Half-yearly	7.52%
Quarterly	7.45%
Monthly	7.40%

• So, the minimum interest rate is 7.40% per annum (for monthly frequencies), and the minimum interest rate is 7.66% per annum (for yearly frequencies).

What are the primary benefits of the scheme?

• During the term of 10 years, the pensioner will receive the amounts as per the frequency chosen.
• In case of the death of the pensioner during the interim period, the purchase price will be paid to the beneficiary (ensure to specify the nomination details at the time of application).
• In case the pensioner survives till the end of the year 10, he/she would get the purchase price as the final pension instalment amount along with the pension amount for that period.
• GST will not be applied to the transactions under this scheme

What is the surrender value under the scheme?

Suppose the pensioner chooses to exit the policy term due to exceptional circumstances such as a critical or terminal illness of self or family member; in that case, he can withdraw from the scheme. In such a case, the surrender value would be 98% of the purchase price paid.

What if the pensioner requires funds during the interim period?

The pensioner may require a loan within the interim period. However, the loan can be available only after the completion of 3 years. The maximum allowed loan is 75% of the purchase price. However, interest accruing on such loan amount will be recovered from the pension amount. The frequency of interest on loan and pension payments would be matched to ease the deduction of interest from the pension amount.