How senior citizens can optimise use of SCSS, PMVVY scheme

Senior Citizen

The budget had good news for senior citizens. Finance minister Nirmala Sitharaman announced the doubling of the Senior Citizens Savings Scheme (SCSS) investment limit to Rs 30 lakh from Rs 15 lakh and that of the Post Office Monthly Income Scheme (POMIS) to Rs 9 lakh.

However, when something is given with one hand, something else ‘may’ be taken back by the other. And that is the Pradhan Mantri Vaya Vandana Yojana (PMVVY), a pension scheme exclusively for senior citizens aged 60 years and above, which is set to close on March 31, 2023, unless it is extended.

The two schemes – SCSS and PMVVY – are quite good options for those over 60 seeking government-backed regular income with almost risk-free returns.

Here are the timelines of changes for the two schemes:
• SCSS limit of Rs 15 lakh till March 31, 2023
• PMVVY available up to Rs 15 lakh till March 31, 2023
• SCSS limit increases to Rs 30 lakh from April 1, 2023
• PMVVY will be unavailable from April 1, 2023

While the SCSS limit will increase, PMVVY will cease to exist in one and half months, assuming the government doesn’t extend it beyond March 2023.

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It’s worth noting that PMVVY started as a one-time scheme in 2017 and was then extended – first for two years (from 2018 to 2020) and then by three years from 2020 to 2023.

While it’s not known whether the PMVVY subscription window will get extended, senior citizens still have until the end of March 2023 to invest in the scheme (if they haven’t already) and then use SCSS’s increased limit from April.

Here’s what a senior citizen with enough funds can do to maximise the use of both schemes over the next month and a half:

• Invest Rs 15 lakh in SCSS. This will utilise the upper limit of the scheme till March 31, 2023. This will be done at the current SCSS interest rate of 8 percent per annum. That translates into an annual interest income of Rs 1.2 lakh. Since the interest rate is locked for the full five-year term of the SCSS, the investor is assured of getting Rs 1.2 lakh a year for five years.

• Invest Rs 15 lakh in PMVVY to utilise this scheme’s upper limit by March 31, 2023, when the scheme is scheduled to close. The current PMVVY pension rate is 7.4 percent per annum, which translates into an annual income of Rs 1.11 lakh. Since PMVVY’s tenure is 10 years, the investor is assured of getting Rs 1.11 lakh a year for 10 years.

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• From April 1, 2023, a senior citizen can invest an additional Rs 15 lakh in the SCSS to benefit from the increased limit of Rs 30 lakh. The government reviews small savings interest rates every quarter. So, unless there are any changes in the SCSS rates from the April-June quarter, once again one can get 8 percent, or Rs 1.2 lakh in interest income from the additional contribution.

The interest adds up to about Rs 3.5 lakh annually, or over Rs 29,100 monthly.

A senior citizen couple with sufficient funds can use these limits individually to double their investments in these schemes. With a total of Rs 60 lakh in SCSS and Rs 30 lakh in PMVVY, a retired couple can generate about Rs 7 lakh per year in interest income.

And if one also considers POMIS and the newly launched Mahila Samman Savings Certificate, then there is potential for a senior citizen couple to generate a monthly income of about Rs 70,500 on an investment of Rs 1.1 crore, as explained in this article.

If this level of income is not sufficient, then senior citizens can consider setting up a systematic withdrawal plan (SWP) from a suitable debt fund.

Don’t Ignore Equities

However, the fact is that pure debt schemes are unable to beat inflation in the long term. And that is why a part of the retirement portfolio should be invested in equities. It does not have to be a large allocation – depending on the corpus size, risk appetite and income requirements, 25-40 percent equity exposure can be considered to extend portfolio longevity.

This will ensure that at least a part of the corpus grows faster than inflation. For equities, it’s best for retirees to allocate money to schemes such as large-cap index funds, flexi-cap funds, and aggressive hybrid funds.

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