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World Senior Citizens Day 2024: Top government-backed pension schemes for elderly

World Senior Citizens Day 2024: Top government-backed pension schemes for elderly

The NDA government has rejected the return to the Old Pension Scheme (OPS). In its absence, the Centre has launched many special pension schemes for senior citizens to provide them with financial stability and security post-retirement.

Business Today Desk
Business Today Desk
  • Updated Aug 21, 2024 2:30 PM IST
World Senior Citizens Day 2024: Top government-backed pension schemes for elderlyThe Centre provides various pension schemes for citizens to promote financial independence post retirement.

India currently houses a senior citizen populace of 13.8 crore as of 2021, with 7.1 crore being women. The number of individuals aged 60 and above is anticipated to surge to 22.7 crore by 2036, constituting 15% of the nation's populace. Furthermore, by 2050, this demographic is projected to expand to 34.7 crore, representing 20.8% of the total population.

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In light of the absence of a social security scheme like in other developed nations, it is imperative for India to promptly implement a universal pension scheme to guarantee economic security for its aging and retired demographic. This call to action has been echoed by numerous organisations dedicated to enhancing the well-being of retirees and pensioners.

The NDA government has rejected the return to the Old Pension Scheme (OPS). In its absence, the Centre has launched many special pension schemes for senior citizens to provide them with financial stability and security post-retirement.

Senior Citizens Savings Scheme

The Senior Citizens Savings Scheme (SCSS) is a savings scheme offered by authorised banks and post offices on behalf of the central government. It is available to citizens who are above 60 years of age or have retired under the Voluntary Retirement Scheme and are aged between 55 to 60 years old. The current rate of interest on SCSS investments, set by the government for the fiscal year 2022-2023, stands at 7.60%.

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Regarding the investment and maturity period, the SCSS has a maturity term of five years from the date of opening the account, with an option to extend it for an additional three years. In the unfortunate event of the account holder's demise, the deposit along with accrued interest is refunded to the nominee.

The rate of interest on SCSS investments is determined by the government at the commencement of each fiscal year. For instance, in the financial year 2019-2020, the interest rate was 8.60%, followed by 7.40% in 2020-2021, and currently stands at 8.20% for the July-September quarter of FY25.

Pradhan Mantri Vaya Vandana Yojana

The Pradhan Mantri Vaya Vandana Yojana, a government-backed pension scheme, is designed to provide financial security for Indian citizens without any maximum age limitation. However, it is important to note that Non-Resident Indians (NRIs) are not eligible to avail of this facility.

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For the fiscal year 2024-25, the scheme offers an attractive assured rate of return at 7.4% per annum. The investment amount to kickstart your PMVVY account begins at Rs.1.5 Lakh, with the maximum purchase price capped at Rs.15 Lakh.

One of the key benefits of PMVVY is that the pension amount remains fixed regardless of the investor's age. Additionally, investors can opt to avail a loan of up to 75% of their purchase price after completing a minimum of 3 years in the scheme.

If you are considering investing in PMVVY for your retirement planning, it is essential to approach LIC, the exclusive provider of this scheme. Both offline and online avenues are available for individuals looking to open an account under the Pradhan Mantri Vaya Vandana Yojana.

The tenure for this policy is 10 years, during which you must commit to the full duration in order to receive the final pension and purchase price at the end of the term. This policy provides various pension payout options including monthly, quarterly, half-yearly, or yearly payments.

The scheme carries tax implications similar to the Senior Citizens Savings Scheme. It falls under the ETT category. This means that you are not subject to taxation on the investment itself. However, the interest earned is taxable according to your income tax bracket, and the maturity amount is also taxable. It's worth noting that TDS is not automatically deducted from the interest you receive.

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National Pension Scheme 

The National Pension Scheme (NPS) is a well-regarded investment and retirement alternative for middle-class individuals, particularly in the absence of OPS. Administered by the Pension Fund Regulatory and Development Authority of India (PFRDA), the NPS is targeted at individuals between the ages of 18 to 65, aiming to nurture a retirement fund. 

Under the National Pension System (NPS), individual savings are combined and invested in a pension fund. The investments are diversified across various portfolios, including Government Bonds, Treasury Bills, Corporate Debentures, and Stocks. The returns on the NPS are contingent upon the performance of the assigned funds as it operates on market principles.

There are two kinds of NPS accounts:

Tier I NPS Account: With a minimum investment requirement of INR 500 and no upper threshold, this account comes with a lock-in period until the depositor reaches 60. Upon maturity, up to 60% of the accumulated amount can be withdrawn, while the remaining 40% must be utilized to purchase an annuity from an insurance provider to acquire a monthly pension.

Tier II NPS Account: Tier II account is a voluntary account available for individuals who already possess a Tier I account. To open a Tier II account, individuals are required to make a minimum deposit of Rs 250.

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Employees contributing to NPS are eligible for following tax benefits on their own contribution:

Tax deduction up to 10% of salary (Basic + DA) under section 80 CCD(1) within the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.
Tax deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE.

Tax benefits to employees on Employer's contribution

Eligible for tax deduction up to 10% of salary (Basic + DA) (14% if such contribution is made by Central Government) contributed by employer under Section 80 CCD(2) over the limit of Rs. 1.50 lakh provided under section 80 CCE.

Tax benefits to self-employed

Individuals who are self-employed and contributing to NPS are eligible for following tax benefits on their own contribution

Tax deduction up to 20 % of gross income under section 80 CCD (1) with in the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE. Tax deduction up to ₹50,000 under section 80 CCD(1B) over and above the overall ceiling of Rs. 1.50 lakh under Sec 80 CCE. Tax benefits on partial withdrawal from NPS account

Eligible for tax exemption on the amount withdrawn upto 25% of the self contribution, on such terms and conditions as may be specified by PFRDA under section 10(12B).

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Atal Pension Yojana

Atal Pension Yojana (APY) is a pension scheme initiated by the Government of India during the fiscal year 2015–2016. The primary objective of this scheme is to offer pension benefits to individuals employed in the unorganized sector.

The regulatory oversight of the Atal Pension Yojana is managed by the Pension Funds Regulatory and Development Authority of India (PFRDA). By promoting savings from an early age, this pension scheme aims to assist individuals in managing their financial responsibilities effectively during retirement.

The pension amount that an individual is eligible to receive through the Atal Pension Yojana is directly linked to the monthly contributions they opt to make, as well as their age. Beneficiaries enrolled in the Atal Pension Yojana are entitled to receive their accumulated funds through monthly payouts. In the unfortunate event of the beneficiary's demise, the spouse will continue to receive the pension benefits. If both the beneficiary and their spouse are deceased, the nominee designated by the beneficiary will receive the accumulated amount as a lump sum payment.

Varishtha Pension Bima Yojana (VPBY) 

The Centre made an official announcement in the Union Budget 2014-2015 regarding the revival of the Varishtha Pension Bima Yojana (VPBY). Administered by the Life Insurance Corporation (LIC), VPBY is designed to provide income security to senior citizens aged above 60 years by offering them a guaranteed rate of return.

Upon purchasing a policy under the VPBY by paying a lump sum amount, pensioners become eligible to receive regular pension payments on a monthly, half-yearly, quarterly, or annual basis. This flexibility allows pensioners to select a payment frequency that aligns with their convenience and financial requirements.

Published on: Aug 21, 2024 2:30 PM IST
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