Senior Citizen Savings Scheme Or LIC's PMVVY Pension Scheme: What To Know

Senior citizens can now invest in Pradhan Mantri Vaya Vandana Yojana (PMVVY), a pension scheme operated by insurance major LIC or Life Insurance Corporation. The pension scheme, operated by LIC, opened last month. Senior Citizen Savings Scheme (SCSS) is also a popular investment scheme for senior citizens. Should one invest in Pradhan Mantri Vaya Vandana Yojana or Senior Citizen Savings Scheme or both? Under the Pradhan Mantri Vaya Vandana Yojana, senior citizens (60 years and above) will get a guaranteed interest of over 8 per cent for 10 years. Investors can pick from four pension payment options: monthly, quarterly, half-yearly and yearly.

Manoj Nagpal, CEO of Outlook Asia, said senior citizens should take advantage of PMVVY as well as Senior Citizen Savings Scheme. "If one has to choose one over the other, then the PMVVY is better as one has a longer timeframe need of 10 years while the SCSS is better for higher liquidity it provides," he said.

The PMVVY pension scheme allows premature exit during the policy term under exceptional circumstances, for example, in case the pensioner requires money for treatment of an critical/terminal illness of self or spouse, LIC said. The surrender value payable in such cases will be 98 per cent of the original amount invested. Senior citizens can avail a loan facility after completion of three policy years. The maximum loan that can be granted will be 75 per cent of the invested amount.

On the other hand, SCSS has a tenure of five years though it can be extended by another three years. Currently, Senior Citizen Savings Scheme offers an interest rate of 8.4 per cent but the interest rate is reset every quarter.

Senior Citizen Saving Scheme allows premature closure of account at charges ranging from 1 per cent to 1.5 per cent of the deposit amount.

The total investment limit per family under the Pradhan Mantri Vaya Vandana scheme is Rs 7.5 lakh, It is Rs 15 lakh per person in case of Senior Citizen Savings Scheme.

"Withdrawal before 10 years is subject to conditions and with 2 per cent penalty in PMVVY whereas in SCSS withdrawal is without any conditions and with only 1 per cent penalty. Thus SCSS has higher liquidity," Mr Nagpal said.

"Effectively both the schemes though cater to the senior citizens but with minor variations. We suggest that the SCSS is more suitable for a person above the age of 70 as the need of liquidity then may be higher whereas the PMVVY maybe more suitable for a person in the early retirement stage," he added.

If a senior citizen has a higher surplus, he or she can use both the schemes by investing a total of Rs 30 lakh (Rs 15 lakh in the name of each spouse) in SCSS and Rs 7.5 lakh in PMVVY, thus totally investing Rs 37.5 lakh, and in essence getting around Rs 25,000-27,000 per month as pension, Mr Nagpal further said.

Though the pension amount is taxable in both the schemes, Mr Nagpal said, effective tax planning and higher tax slabs can greatly reduce the impact of tax.