Senior Citizens Savings Scheme or LIC pension scheme: Which one should you choose

Senior Citizens Savings Scheme or LIC pension scheme: Which one should you choose

New Delhi: With the Reserve Bank of India cutting the key repo rate by 115 basis points since the outbreak of Covid pandemic, banks have reduced interest rate on their fixed deposits. However, some banks like SBI, ICICI Bank, Bank of Baroda have launched special FD schemes for senior citizens so that they can earn higher interest on their savings. But return from these FDs is less than 7%.

However, there are two central government funded schemes for senior citizens which still offers more than 7% guaranteed return to senior citizens so that they can earn higher interest on their savings. Pradhan Mantri Vaya Vandana Yojana (PMVVY) marketed by LIC and Senior Citizen Savings Scheme (SCSS)  offered by India Post are the two central government-funded schemes, which provides higher interest rate and safety of capital.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

PMVVY, which had earlier closed on March 31, 2020, was extended by the government for another three financial years till March 2023. The biggest change in the new PMVVY scheme is interest rate on this scheme will keep on changing every financial year.

This pension scheme has a tenor of 10 years. You can choose monthly, quarterly, half-yearly or yearly modes of pension. If you invest in PMVVY scheme before March 31, 2021, the government has declared an interest rate of 7.4% payable monthly. If you opt for annual pension mode, you will get 7.66% per annum for the entire duration of ten years. For investments made in the next two financial years – FY2021-22 and FY2022-23 – interest rate will be declared at the start of each financial year.

This pension scheme is exclusively marketed by LIC in both offline and online mode.

The maximum investment that can be made in PMVVY is restricted to Rs 15 lakh per senior citizen and the maximum monthly pension in PMVVY is Rs 9,250 per person. If both spouses are above age 60, they can draw a maximum monthly pension of Rs 18,500 by investing Rs 30 lakh. This pension is not dependent on the age of the pensioner.

Here are the details you need to know about PMVVY scheme

Yearly pension mode
Minimum investment : Rs 1,56,658
Maximum investment : Rs 14,49,086

Minimum pension per year is Rs.12,000 while the maximum pension is Rs 1.10 lakh

Half-yearly pension mode
Minimum investment : Rs 1,59,574
Maximum investment : Rs 14,76,064
Minimum pension per half-year is Rs.6,000 while the maximum pension is Rs. 55,500

Quarterly pension mode
Minimum investment : Rs 1,61,074
Maximum investment : Rs 14,89,933

Minimum pension per quarter is Rs. 3,000 while the maximum pension is Rs. 27,750

Monthly pension mode 
Minimum investment : Rs 1,62,162
Maximum investment : Rs 15,00,000

Minimum pension per month is Rs. 1,000 and the maximum pension is Rs 9,250

Premature surrender of the PMVVY is allowed in case of medical emergencies. If the pensioner or his/her spouse suffers from terminal illness or critical illness, pre-mature withdrawal is allowed. In such cases, 98% of the purchase price is paid back to the policyholders.

Senior Citizens Savings Scheme (SCSS)
Senior citizens can invest in these schemes either through post office or through a bank. Interest rate in this scheme is reviewed by the government every quarter. But once you invest in this scheme at a particular rate, it remains fixed throughout the tenor of the scheme. If you invest before September 30, 2020, then you will earn 7.4% interest till maturity.

Tenure of SCSS: The tenure of a SCSS account is five years. Post maturity, the scheme account can be extended for another three years. The extension can be done within one year of maturity.

Minimum and maximum investment: The minimum investment amount under the scheme is Rs 1,000 and the maximum investment cannot exceed Rs 15 lakh.

Interest payment: Interest in this scheme is paid quarterly. So, interest amount will be credited on the first working day of April, July, October and January. This interest is subject to tax deduction at source if the total interest payments exceed Rs 50,000 in a financial year.

Tax benefit: Investment in this scheme is eligible for tax deduction subject to an upper limit of Rs 1.5 lakh, under section 80C of the Income-tax Act, 1961. Also, interest received from the scheme is eligible for deduction under section 80TTB of the Income-tax Act.

safety of capital: Premature closure of the scheme is allowed. However, a penalty will be levied depending on the remaining tenure of the account. If you close the account before one year from the date of investment, then no interest will be payable and any interest amount already paid will be deducted from the principal amount before repayment. If the account is closed after one year but before two years, then 1.5% of the deposit amount will be deducted as penalty. If the account is closed after two years, then 1% of the deposit will be deducted.