GOI has announced a pension scheme called “Vaya Vandana Yojana” for retired people above 60 years of age.
As the name indicates (Vaya vandana: salutation to age), this policy provides social security for aged people
This scheme has been launched only in May’2017, but for a limited time period.
Earlier the last date for its subscription was only till 4th-May’18. But now its validity has been increase till 31-Mar’2020.
Only LIC of India has been authorised to sells the “Vaya Vandana Scheme”.
This scheme is marketed by LIC in the name of “Pradhan Mantri Vaya Vandana Yojana”.
This is a scheme which works on similar lines of Senior Citizen Savings Scheme (SCSS).
Like SCSS, Vaya Vandana Yojana (VVY) is also tailor made for retired citizens of India (age above 60).
But unlike SCSS, Vaya Vandana Yojana can generate monthly income. SCSS can generate only quarterly income.
So if one has to choose between SCSS and VVY, which is more preferable?
What is the difference between Vaya Vandana Yojana (PMVVY) and SCSS?
Lets see a more detailed comparison between Vaya Vandana Yojana and SCSS.
#1. Policy Term
The maturity period for Vaya Vandana Yojana (VVY) is 10 years.
The maturity period for SCSS is 5 years.
What does it mean?
The depositors money remains locked for 10 years in Vaya Vandana yojana.
But the depositor can earn a regular pension amount at the end of each period chosen (month, quarter, annual).
The depositors money remains locked for 5 years in SCSS.
But the depositor can earn a regular interest amount at the end of each period (only quarterly).
#2. Death Benefit
In case of death of the pensioner within the policy term of 10 years (VVY), the beneficiary will get the full invested amount.
SCSS does not have any death benefit. But they have the following:
- Provision of joint account (with spouse only).
- Nomination facility is available.
#3. Maturity Benefit
VVY: In case the pensioner survives the full policy term of 10 years, the pensioner will get the following:
- Full invested amount.
- Final pension amount due.
SCSS: After maturity, the SCSS account gets closed and the invested money can be withdrawn.
But it is also possible to extend the matured SCSS account by another 3 years.
#4. Age Limit
Person above 60 years of age is eligible to buy Vaya Vandana Yojana scheme.
There is no upper age limit in VVY.
But in SCSS there are two conditions for age limit:
- Age>/=60 years: Any individual above this age can buy SCSS.
- Age>/=55 years: Any individual who has retired on superannuation or under VRS can buy SCSS.
But in case 2 (age>55), the person must buy SCSS within 1 month the retirement benefit gets credited to his/her account.
Vaya Vandana Yojana (VVY):
SCSS: At present it offers an interest rate of 8.3% per annum.
The interest amount is paid to the depositor every quarter.
So in terms of returns, SCSS and Vaya Vandana Yojana is almost identical.
VVY: The maximum amount one can invest in Vaya Vandana Yojana is Rs.15,00,000.
These Rs.15 lakhs can generate a maximum pension income of Rs.10,00o per month.
But the restriction (max limit) of Rs.15 lakhs is per senior citizen in a family.
Suppose both the husband and wife is a senior citizen. This family can invest Rs.30 lakhs in VVY.
In this case the family can earn Rs.20,000 per month income from VVY (check this GOI notification).
SCSS: The maximum amount that can be invested in SCSS is also Rs.15 lakhs.
But SCSS accounts can be opened in 25 different banks in India.
Sum total of all deposits in such SCSS accounts should not exceed Rs.15 lakhs.
#7. Payment Schedule
VVY: As discussed earlier, the pension payment has the following available schedule:
It means, the pension payment starts after 1 month, 3 months, 6 months or 1 year from the purchase date.
The preferred payment schedule must be indicated by the account holder during account-opening itself.
The pension amount can be credited to ones account by NEFT or Aadhaar Enabled Payment System (AePS).
SCSS: Interest payment is made at the end of each quarter.
Interest payment is made on the first working day of the following months:
- April (for quarter between Jan to Mar),
- July (for quarter between Apr to Jun),
- October (for quarter between Jul to Sep), and
- January (for quarter between Oct to Dec).
The interest amount can be credited to ones account. But this account must be opened in the same branch.
If SCSS account is in a Post office. Account must be opened in the same branch of the post office.
Same is applicable for the banks as well.
#8. Premature Closure
VVY: In normal circumstances, premature closure of Vaya Vandana account is not possible.
But under “exceptional circumstances” the scheme can be closed.
Exceptional circumstance can be a serious medical condition which requires more funds.
But even if the premature close has been allowed, LIC will release only 98% of the invested value.
SCSS: The premature closure term is not so strict in this case.
Here the premature closure is allowed after lapse of 1 & 2 years under following conditions:
- Premature Closure after 1 year: 98.5% of the invested amount will be released.
- Premature Closure after 2 years: 99.0% of the invested amount will be released.
#9. Minimum Investment
VVY: Here the minimum investment is Rs.1,44,578.
This investment will generate an income of Rs.1,000 per month (paid once a year).
VVY: Here the minimum investment is Rs,1,000.
This investment will generate an income of Rs.20.15 per month (paid every quarter).
#10. Income Tax Benefit
VVY: On the website of LIC, tax benefit (like in u/s 80C) has been not been declared.
So it is better to get it checked from an LIC agent before investing.
Generally speaking, contribution to pension funds are eligible for tax deduction u/s 80CCC.
SCSS: Contribution to SCSS qualifies for deduction under Section 80C.
#11. TDS Deduction
VVY: On the website of LIC, the clarification for whether TDS is applicable or not is not provided.
So it is better to get it checked from an LIC agent before investing.
SCSS: TDS is applicable if the payable interest exceeds Rs.10,000 per annum.
Earlier the maximum investment limit in Pradhan Mantri Vaya Vandana Yojana (PMVVY) was only Rs.7.5 lakhs.
But in May’18, the union cabinet extended this limit to Rs.15 lakhs.
This step is certainly a very welcome move by GOI.
Extension of last date of subscription from May’2018 to Mar’202o will also help more senior citizens to subscribe to this plan.
People who have already bought PMVVY must also note the following amendment:
Max investment of Rs.15 lakhs is allowed per senior citizen of family.
It means, now PMVVY can also be purchased for the spouse.
This will help the family to generate Rs.20,000 per month (Husband + Wife).
In times to come, the interest rate in India will surely fall to the range of 6-7% per annum.
But the PMVVY scheme will continue to yield 8.3% return till maturity (10 years).
As a comparison between PMVVY and SCSS, PMVVY scores higher. Why?
Because it enables a family to invest Rs.15 lakhs per senior citizen.
Moreover, the interest paid by PMVVY is at par with SCSS.
Hence, this scheme is advisable for all senior citizens.