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The Pradhan Mantri Vaya Vandana Yojana (PMVVY) is a pension scheme introduced by the Government of India to ensure regular pension for the senior citizens. It was first launched in 2017 by the then Finance Minister, Arun Jaitley. It is a non-linked and non- participating pension scheme bankrolled by the Indian Government. However, it is the Life Corporation of India (LIC), a State-owned insurance group and investment corporation that operates the scheme. It was extended to 31 March 2020. But, as per a recent tweet by K. S. Dhatwalia, Principal Director General of the Press Information Bureau, this scheme has received another extension. According to his tweet, the Union Cabinet has further extended the PMVVY scheme for three years. Now, it will be available until 31 March 2023. Such a decision was taken for the welfare of senior citizens as well as to provide them with income security.
The PMVVY scheme falls in line not only with the provisions of the Indian Constitution but also with the provisions of the Universal Declaration of Human Rights.
What is the scheme?
The Pradhan Mantri Vaya Vandana Yojana is a pension scheme for senior citizens. It is subsidized by the Central Government and managed by LIC. This scheme provides a guaranteed and regular pension for 10 years at a specified rate. The frequency of the payout can be monthly, quarterly, or yearly. This scheme was launched after the success of previous pension schemes and aimed to provide senior citizens with a simplified and effective mechanism to protect their interests.
PMVVY also provides for a benefit to a nominee on the death of a pensioner. Such a benefit would be provided in the “form of the return of purchase price”. With the extension up to 31 March 2023, senior citizens over the age of 60 can purchase this scheme over the next three years.
Its salient features
The minimum age criteria for availing this scheme is 60 years. No maximum age limit criterion has been set. This means that everyone above the age of 60 years can benefit from this scheme.
- Term of policy
This policy is available for a term of ten years at a rate of return of 7.4%.
- Purchase price
This scheme can be purchased at a minimum price of Rs. 1,56,658 and at a maximum price of Rs. 14,49,086 for a yearly pension. For a monthly pension, the minimum price is Rs. 1,62,162 and maximum is 15,00,000.
- Payment of Purchase Price
The scheme can be availed with the payment of a lump-sum purchase price and the pensioner has an option to choose the amount of pension, the purchase price as well as the frequency of receiving the pension.
- Pension received
This scheme provides for a minimum pension of Rs. 1,000 per month to a maximum of Rs. 10,000 per month. This amount would depend upon the amount invested in the scheme. Another thing to note is that the maximum pension received by a family as a whole under this policy shall not exceed the maximum amount allowed.
- Mode of purchase
This scheme can be purchased through both online and offline modes.
Loans are available only after the completion of three years of the policy. The maximum amount available for taking up a loan is 75% of the purchase price.
- Surrender Value
This scheme also provides for a premature exit. Such a premature exit is only allowed in exceptional cases like the critical illness of the pensioner or their spouse. In such circumstances, 98% of the purchase price is payable as surrender value.
- Tax benefits
The returns received under this scheme are taxed according to the existing statutory tax laws. The PMVVY scheme is not covered by section 80C of the Income Tax Act, 1961. This means that a pensioner cannot claim a deduction of tax under this Act. However, this scheme gets exemption from Goods and Services Tax (GST).
- Free look period
In case of dissatisfaction with the terms and conditions of the policy, it can be returned to the LIC within 15 days. It can be returned within 30 days if purchased online. Such a return must come along with a statement of reasons behind the return. The deposited purchase price would be returned after a deduction of the stamp duty and the amount of pension paid. This provision gives ample time for the senior citizens to decide upon the continuation/discontinuation of the policy.
In the case of suicide by a pensioner, there shall be no exclusion. In such a case, the full purchase price has to be paid.
Relevant legal provisions
- Constitutional Provisions
- Article 38 of the Constitution provides that the State must strive to promote the welfare of people by protecting the social order which bears social, economic, and political justice.
- Article 41 directs the State to make effective provisions regarding public assistance in cases of old age.
- Under Article 47, the State has the responsibility to raise the standard of living of its people.
- Entry No. 47 of List I related to insurance. Entry No. 9 of List II talks of relief to disabled and unemployable. Entries 20 and 23 of List III relate to social planning and social security and insurance respectively.
- The Insurance Act, 1938
- Section 41 lays down provisions regarding the prohibition of rebates. It puts certain restrictions on rebates except for those allowed according to the published prospectus of the insurer. A person violating the provisions of this section is liable for a penalty exceeding up to ten lakh rupees.
- Section 45 of this Act protects the policy from unnecessary legal actions if any. It provides that a policy of life insurance cannot be questioned on any ground after the expiry of three years from:
- the date on which the policy was issued, or
- the date on which risk commenced, or
- the date on which policy was revived, or
- the date of rider to the policy, whichever is later.
The policy can be challenged on the grounds of fraud according to the provisions of this section. This section also provides for some other cases where the policy can or cannot be called in question.
India has one-fifth of the world’s population and one-eighth of the world’s elderly population. Article 21 of the Constitution provides for the right to life. This right also takes within its ambit the right to live a dignified life. Such a right includes not only the basic human needs of food, clothing, and shelter but also health and security. The government introduces various social security schemes that often give priority only to income security. It is assumed that the basic needs of a vulnerable person in need of aid can be fully satisfied with adequate income.
In a joint family system, with multi-generational co-residence, the economic and emotional security of the elders is often taken care of. However, it is not always the case. When the families fail to provide for their elderly, irrespective of the reasons, it becomes the duty of the State to ensure their well-being. The State is the guardian of those who cannot provide for themselves. Thus, it aims to protect the lives of senior citizens through various social insurance as well as social assistance schemes.
Based on this perspective, the National Old Age Pension Scheme (NOAPS) was first introduced in 1996. It was later renamed as the Indira Gandhi National Old Age Pension Scheme in 2007. It is a non-contributory old-age pension scheme that covers people who are destitute and of 60 years of age and above. However, the monthly payment under this scheme has been very meager. For instance, in economically developed states like Tamil Nadu, the monthly pension for a senior citizen is Rs. 1000 whereas the cost of living is relatively high. In such a situation, this meager amount is not enough to meet the basic needs including nutrition and health.
The approach towards the social security of senior citizens has been very narrow in India. It often fails to cover the basic and minimum requirements. The policies by the government miss the right-based approach. This limits the scope of social security when it comes to senior citizens.
It was at this juncture that the PMVVY was introduced in 2017. It is a contributory pension scheme that covers all senior citizens of India. It provides for a simplified pension scheme which covers all senior citizens over the age of 60. This scheme aims to provide a pension pay-out for ten years at a specified interest rate. There is a minimum and maximum purchase value and the pensioner can choose any amount within this limit. They also have the choice of choosing the frequency of pension.
The PMVVY scheme resembles an insurance scheme. The terms and conditions laid in the scheme including the purchase policy and the rate of interest bear similarities to various insurance schemes. The interest rate of the scheme is fixed for the initial years and is subject to market fluctuations in the due course of time. The policy maturity calculation in PMVVY is also similar to fixed deposits and recurring deposits in the bank and post office. For example, the interest rate in IDFC bank for a fixed deposit of senior citizens is 7.75%, which is greater than the interest rate in PMVVY. Further, the operating agency of the scheme itself is an insurance corporation. Hence, it can be said that the mode of this scheme differs from all the other social security schemes in India.
However, it cannot be ignored that not every senior citizen would be able to afford the purchase price. This scheme is only suitable for those who have existing savings amount. So, despite its best efforts, there is a possibility that this scheme would not cover all senior citizens.
The PMVVY is the latest social security scheme for the senior citizens of India. It comes engraved on an investment mode to provide a pension including life coverage for senior citizens. There is a shift from welfare mode to business mode wherein no special classification was made for the economically backward sections. Since the terms and conditions and the benefits accruing from the scheme are similar to other investment schemes, it provides no special gain. Thus, senior citizens are in search of better investment options that come with a higher growth rate of money. To conclude, the PMVVY must be revised as such that it also includes senior citizens belonging to the economically backward sections. The need is to blend the business approach with the welfare approach.
Author: Valan. A from Tamil Nadu National Law University, Thiruchirappalli.
Editor: Shalu Bhati from Campus Law Centre, Faculty of Law, University of Delhi.