Retirement plans are a nest egg for those who value regular security

Life after retirement in India typically begins at the age of 60. People do not have a uniform risk appetite. There are people who are risk averse just as there are people who don’t mind putting their arm on the line to get something more than risk aversion can get and don’t mind being singed, i.e. losses to accept the result of their bravery in their steps.

For the second category, stock market investing can be the gravitas either directly or through the safety of mutual funds. In this article, we will deal solely with the first category – for which the safety of the investment and the regularity of the return are more important than anything else.

Pradhan Mantri Vaya Vandana Yojana (PMVVY)

The program is a fixed term plan – 10 years. The investment is a one-time upfront payment capped at 15 lakh, in sync with the Post’s senior citizen program. The minimum is the amount that would produce at least ₹1,000 in annuity per month. Only intended for those who have reached the age of 60 again with the post-retirement scheme. It is only open until March 31, 2023. So you have to hurry if she’s already 60, but if she isn’t expected to reach the sanctified status of senior by March 31, 2023, the program would pass her by, although it’s entirely possible that arrangement can be extended.

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One can opt for a monthly or quarterly or semi-annual or annual pension. In the event of death or in the event of surviving until maturity, the capital amount is reimbursed. Taking into account the fact that the interest rate is 7.40% per annum and the fact that it is a one-time upfront investment, the system is clearly a fixed deposit system and therefore the reference to annuity may seem inappropriate.

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The system allows for early withdrawal during the contract period in exceptional circumstances, for example if the pensioner needs money to treat himself or his spouse for a critical/terminal illness. The surrender value to be paid in such cases is 98% of the purchase price. Even after the third anniversary of the policy, a loan of up to 75% of the purchase price is available at the prescribed interest rate, which is obviously a few notches above the annuity rate.

Post Office SCSS

This is by far the system enjoying the greatest recall as it is guaranteed by the Indian government. The fact that the interest rate was raised from the 7.40% shortened by Corona to 7.60% from October 2022 warmed the hearts of the elderly. On the other hand, it matures after five years, but can be extended for another three years.

In this regard, PMVVY scores highly over the Senior Citizen Savings Scheme (SCSS) in that you can invest 10 years and forget about it, instead of worrying about and completing the renewal formalities so early in the day. But it offers no scope for early withdrawal for emergencies, including medical emergencies, and comes with a heavy price for early termination — forfeiture of interest for the first year if the account closes a year ago, forfeiture of 1.5% of the Deposit if it closes during the second year and 1% of the deposit if exit in the 3rd, 4th or 5th year.

The blocking period during the extended term of three years is only one year. The amount deposited into SCSS is deductible under Section 80C of the Income Tax Act, but the interest is taxable.

National Pension Scheme (NPS)

Unlike SCSS and PMVVY, the entry point in NPS is not the gentle age of 60. In that sense, it’s a real nest egg since you start building your body for post-retirement much earlier in the day.

Originally conceived as a sensible alternative to defined advantage Government Employee Plan, thanks to which those who entered government service before 2004 enjoy generous pensions, often many times their last salary (the joint secretary in GOI, whose last salary was ₹8,000 in 1990, draws an amazing pension and delicious ₹1.50 lakh today), the NPS is a defined contribution Plan that requires you to make a monthly contribution to your pension corpus, or nest egg, in order to have a tidy sum after retirement, of which at least 40% must be converted into an annuity. The program was expanded in 2009 to include all interested parties.

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But in April 2021 the Pension Fund Regulatory and Development Authority (PFRDA) pension watchdog stopped making a fetish for the mandatory conversion of at least 40% of the corpus into a pension and allowed full withdrawal as long as the corpus was up to 5 lakh , and allowed a systematic withdrawal amount in excess of ₹5 lakh.

This was a frank admission of pension fund managers who have proven woefully inadequate to the task of running funds for the benefit of the elderly. The brief period in which pension fund managers beat the statutory 8% to 9% rate by the Employees’ Provident Fund Organization (EPFO) proved fleeting, if not illusory.

ICICI Prudential Guaranteed Pension Plan Flexi (ICICI for short)

In deference to the fact that humans do not naturally like to be cast in a mold and instead desire a refreshingly unique system that is the opposite of one-size-fits-all, the ICICI system offers the flexibility of regular savings for a lifetime guaranteed income, Flexibility in choosing how long you want to pay premiums, flexibility in choosing when your pension/income begins and flexibility to receive pensions on a monthly, quarterly, semi-annual or annual basis. It offers a decent yield of 7.59% per year and positions itself as a challenger to Post’s SCSS, which offers 7.60% per year, but both the LIC and Post are fortunate to enjoy state-owned government guarantees.

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In conclusion, unless you were lucky enough to have entered government service before 2004 and enjoy a pension that dares to be middle-aged, it is safe to say that in India you are on your own in the autumn of your life Salaries to match -level employees of the private sector.

SCSS and PMVVY cap of ₹15 lakh is too conservative. In the United States, citizens have the choice to reverse mortgage their homes for annuities or lump sum payments without having to service the loan during their lifetime, the obligation being implicitly passed on to the wayward and incorrigible children.

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In India, reverse mortgages haven’t gained much traction thanks to the mushy sentimentality of parents who can’t even harm their children posthumously. In this case, despite the stingy cap of 15 lakh and an extremely short eight year span to bask under, SCSS enjoys instant recall among elders.

(The writer is a CA by qualification and writes on business, consumer issues and tax laws.)

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