As the population ages, retirement planning is becoming more and more important in India. When making retirement plans, there are many things to take into account, including lifestyle changes, healthcare costs, and inflation. Due to the high cost of living in India, retirement planning is crucial.
In recent years, inflation has been a significant issue because basic goods and services are now more expensive than incomes are rising. Saving money for retirement is challenging as a result. In India, the cost of healthcare is a significant issue.
Traditional retirement planning involves starting early, utilizing the benefits of SIPs on equity funds, and making your money work hard after that. When you are 25 or 30 years old and have 30 to 35 years of working life ahead of you, that is the best course of action. Here, the focus is on a person who completed all planning and retired with a healthy corpus.
For senior citizens, whose medical needs are frequently not covered by public health insurance programs, saving for retirement can be challenging because out-of-pocket costs can be very high. Another aspect to take into account when making retirement plans is changing in lifestyle.
Many people want to retire early and lead leisurely lives, but if they do not have enough money saved up, this may not be possible. Making realistic plans and considering all potential sources of income during retirement is crucial.
The big question that now arises is how to invest the corpus profitably in order to guarantee adequate returns and low risk. Here is a quick look at a few questions that need to be answered before we move on to the products available to senior citizens.
How much risk can a senior citizen take on when planning their retirement using a corpus?
The elderly person is obviously past working age, so they rely on the corpus created to pay for their retirement. The level of risk must be lower than the typical level of risk investors take.
When deciding how to allocate their retirement funds, should seniors choose fixed-rate or floating-rate debt products?
That would largely depend on the availability of the product and the outlook for rates. The RBI floating rate bond, which is available today, is quite alluring. Repo rates have increased by 250 basis points since May 2022, but there is still room for decline.
Should the corpus be maintained at a certain level or should it be gradually reduced after senior citizens retire?
You should draw down your corpus for two reasons. For instance, if you decide to take out your corpus as equated pensions over the next 25 years when you are 60, you will make more money than if you just earn interest or dividends. Additionally, the overall long-term gains would be much lower because the withdrawal includes a return and capital component. It is also tax-efficient.
Let’s move on to a few of the well-liked investments that seniors can make with their post-retirement corpus.
Top 7 Government-Backed Senior Citizen Pension Schemes of 2023
- Vasishtha Pension Bema Yajna – VPBY: The scheme, run by LIC, gives 9% interest for 10 years.
- Employees Provident Fund – EPF: The popular scheme provides an assured interest of 8.10% p.a.
- Senior Citizens Savings Scheme-SCSS: Offered by banks and post offices, the Roil on SCSS is 8% p.a.
- Pradhan Mantri Vasa Bandana Yajna – PMVVY: The scheme under LIC provides a Roil of 7.40% p.a.
- National Pension System -NPS: Based on the performance of the fund, the market-based product offers returns.
- Aral Pension Yojana – APY: The best age range for low-income groups to start saving for retirement is between 18 and 40.
- Indira Gandhi National Old Age Pension Scheme: For BPL citizens to earn pension without contribution.
Varishtha Pension Bima Yojana – VPBY
The Life Insurance Corporation of India (LIC) administers the Varishtha Pension Bima Yojana, a pension system for senior citizens that is government-guaranteed. The government claims that the VPBY plan will provide participants with an annual interest rate on lump sum deposits of 9% (payable monthly).
Account Type
Sixty years of age and older.
Investment
In the VPBY pension plan, the policyholder makes a lump-sum deposit with a 15-year lock-in term in order to start receiving a pension either monthly, quarterly, half-yearly, or annually.
Withdrawal
Funds from the Varishtha Pension Bima Yojana may be withdrawn or claimed in the following situations:
Pensioner’s death: If a discharge form is submitted to the company within 90 days of the policyholder’s death together with an original copy of the policy paperwork, proof of ownership, and evidence of death, the nominee for the pensioner will receive the purchase amount.
Benefit payable on surrender: After 15 years have passed, the pensioner will receive 98% of the purchase price upon an early exit. However, in times of emergency, 98% of the purchase price may be refunded before 15 years upon filing of the necessary paperwork.
Return on Investment
The scheme currently offers 9% annual guaranteed interest, which is deposited into policyholders’ accounts on a monthly basis. The total pension under the policy cannot be more than INR 60,000 annually. The program offers beneficiaries the choice of monthly, quarterly, half-yearly, or annual pension payments.
Loan Benefit
After three policy years have passed since the date of their enrollment in the VPBY program, the policy allows beneficiaries to borrow 75% of the purchase price.
Tax Benefit
Subscribers to the VPBY scheme are eligible for a tax break on the purchase price under Section 80CCC of the Income Tax Act.
How to Apply
Application forms to open a VPBY pension scheme account can be obtained physically from a LIC branch in exchange for submitting the necessary documentation, such as proof of age, identification, etc., online through the LIC’s official website.
Employees Provident Fund – EPF
Account Type
EPF, or Employees Provident Fund, is a financing program available to all salaried people who make more than INR 10,000 a month. The Ministry of Labor and Employment’s program offers an assured interest rate of 8.10% annually.
Investment
EPF is a fund to which both the company and the employee each contribute a portion on a monthly basis. Employees make a 12% contribution (or a predetermined amount of INR 1800) and the employer matches that amount with a 12% deposit.
Withdrawal Options
For insured members to withdraw their PF balances, either partially or completely, the EPFO has established rules. The following withdrawal situations are listed:
In the event of an emergency, insured members may withdraw up to INR 1 lakh from their PF account.
Once you reach the age of 55, you may withdraw your whole PF balance.
Members who leave the service before age 55 must submit claims by the time they are 58 years old.
In the event of the beneficiary’s passing, nominees must submit a claim within three years at the most.
Tax Benefit
In the event that an insured member’s annual EPF payment is less than INR 1 lakh, the principal and interest amount is exempt from taxation. If it surpasses INR 5 lakh, it will be taxable for government workers.
How to Apply
The opening of an EPF account on behalf of employees is permitted by the employer. In order for an employee to access their PF passbook, check their PF balance, etc., the EPFO issues them with a universal account number (UAN). Even after switching companies, one must continue to use the same UAN. Typically, the UAN number can be found on the pay stub or requested from the company.
The EPFO’s web portal allows insured members to check their EPF accounts and view their passbooks, financial statements, and records of the sums withdrawn from their salaries throughout the course of their employment.
Senior Citizens Savings Scheme – SCSS
Seniors over 60 and retired employees between the ages of 55 and 60 are served through the SCSS account. It is a five-year savings plan made available by Indian post offices that offers an 8% return on deposits made in one lump payment.
Account type
Only a joint and single account with the spouse.
Investment
During the Union Budget for 2023–2024, the government increased the maximum deposit limit from INR 15 lakh to INR 30 lakh. SCSS investments are made as a flat amount.
Maturity
Payable every three months.
Return on Investment
8% annual interest is being offered by SCSS at the moment, and it is calculated on a quarterly basis using simple interest. The beneficiary’s account is increased by the interest earned on the deposit.
Withdrawal
Only the monthly interest that is auto-credited to savings accounts at the post office may be withdrawn. Alternately, take the entire sum out when it matures.
Premature withdrawal
Premature closure of SCSS accounts is subject to a penalty of up to 1.5% of the original deposit.
Tax Benefit
If the interest earned falls below the set maximum of INR 50,000 in a fiscal year, the deposit in the SCSS account is eligible for a tax deduction.
How to Apply
Visit authorized branches of banks and post offices.
Send in the SCSS form, documents proving your identity and age, and your retirement.
Individuals who retired under voluntary programmes were required to present their job records.
Pradhan Mantri Vaya Vandana Yojana – PMVVY
The Pradhan Mantri Vaya Vandana Yojana, which was introduced in 2017, aims to provide social security to senior Indian people 60 years of age and older. The Life Insurance Corporation of India (LIC) manages the pension programme on behalf of the state.
Account type
Only a joint and single account with the spouse.
Investment
Deposit a lump sum amount to receive the pension and interest in either monthly, quarterly, half-yearly, or annual instalments for a period of ten years following the date of policy purchase.
Return on Investment
The current RoI for the PMVVY programme is 7.40%. The return is obtained based on the policy’s purchase price and method of payment that was chosen when the account was opened.
For instance, a pension of INR 9,250 per month can be received on a purchase of INR 15 lakh, and an annual pension of INR 1, 11,000 can be obtained on a purchase of INR 14, 49,086. The same goes for INR 1, 61,074 paid quarterly for INR 14, 89,933 and INR 1, 59,574 paid semi-annually for INR 14, 76,064.
Withdrawal options
Pensioner’s death: The pensioner’s nominee will get the money.
Benefit payable on surrender: Upon premature exit, the pensioner will receive 98% of the purchase price, with 2% set aside for emergencies.
Benefit payable on maturity: After the policy’s ten-year term has expired, the full purchase price and final pension instalment must be paid.
Tax Benefit
Under Section 80C of the Income Tax Act of 1961, interest earned on the PM Vaya Vandana Yojana is eligible for income tax deductions.
How to Apply
Visit the LIC branch office and turn in the necessary paperwork, including proof of age and identification.
National Pension System -NPS
The National Pension Scheme (NPS) is made available by India’s Pension Fund Regulatory and Development Authority (PFRDA). To create your retirement fund, you can invest in a variety of asset types using the government-backed scheme.
Account Type
For residents between the ages of 18 and 65.
Return on Investment
Since it is a market-based product, the NPS system offers rewards based on the performance of funds. Keep in mind that NPS offers two different account options:
Tier I NPS Account: There is no maximum investment amount and a contribution minimum of INR 500. The money is locked in until the depositors reach the age of 60. The deposit’s maximum withdrawal amount is 60%, and the remaining 40% of the corpus must be invested in order to purchase an annuity plan from the insurance provider in order to get a monthly pension.
A minimum deposit of INR 1,000 must be made in order to start a voluntary Tier II NPS account, which can only be formed by people who currently have a Tier I account.
Tax benefit
The following scenarios all apply to tax benefits on NPS accounts:
On early exit: Withdrawals from NPS are permitted up to 25% of the corpus, which is the amount that is tax-free.
Lump sum withdrawal at retirement: 60% of the corpus amount that is withdrawn after turning 60 is tax-free.
Purchase annuity: Tax exemption also applies to the remaining 40% that was invested in an annuity plan.
Withdrawal due to death: The candidate will receive the full amount of the tax exemption.
How to apply
The official eNPS website allows for the online establishment of NPS accounts. Upon input of Aadhaar or PAN card information via one-time password verification and an initial payment of at least INR 500, the registration process is self-explanatory. The password to access the account is then generated along with a 12-digit permanent retirement account number (PRAN).
Atal Pension Yojana – APY
The Atal Pension Yojana (previously Swavalamban Yojana) was introduced by the Indian government in June 2015 under the Pension Fund Regulatory and Development Authority (PFRDA) for the 18 to 40 age group, particularly for those working in the unorganized sector to assist them in saving for retirement once they reach the age of 60.
Account Type
Citizens in the 18–40 age range whose income does not fit into the current tax bracket or who receive benefits under any statutory social security programme.
Return on Investment
Beneficiaries receive a pension amount based on their age when they joined APY and their monthly payment amount during a 20-year period. As you become older, your contribution will rise.
The amount changes depending on whether subscribers prefer to get their pension in slabs of 1000, 2000, 3000, 4000, or 5000 rupees. A pension amount can only be increased or decreased once every fiscal year. Let’s use an illustration to better understand:
For example, if you opt to enrol in the APY plan at age 34 in order to obtain a monthly pension of INR 5,000, you will need to make a 20-year deposit of INR 824 every month before you can begin receiving the pension at age 60. For those who sign up for the programme at the age of 18, this sum would be INR 210.
Exit facilities
Voluntary exit: After submitting a voluntary account closure form, the system permits participants to leave before they turn 60. It should be emphasized that subscribers shouldn’t terminate the savings bank account connected to their APY account because doing so could make it difficult to transfer the proceeds of the closure.
Exit due to death: An APY closure form (death) and a copy of the death certificate must be submitted to the relevant branch office by the beneficiary’s nominee. The spouse may continue the contribution for the remaining vesting period if the account holder dies before age 60.
If the spouse decides not to proceed, the pension payments and interest will be returned once the account maintenance fees have been deducted. The pension is provided to the subscriber’s nominee or spouse upon the death of the APY account holder after 60 years.
How to apply
The APY application form can be obtained by those between the ages of 18 and 40 from any scheduled bank or post office, and it must be submitted with supporting documentation such as a ration card, an Aadhar card, a PAN card, a BPL card, and a bank statement.
The permanent retirement account number (PRAN) card, which is also available for download from the APY mobile application, will be given to contributors. Subscribers can access transaction statements, the latest five contributions, and more using this mobile app.
Indira Gandhi National Old Age Pension Scheme- IGNOAPS
Account Type
In order to expand the Indian Indira Gandhi National Old Age Pension Scheme (IGNOAPS) for older persons who fall under the below-poverty line (BPL) category, the Central Government offers all assistance to the states and union territories of the nation.
1.48 Crore (Aadhar) recipients received INR 19.41 crore under the National Social Assistance Programme (NSAP) of the Ministry of Rural Development year 2021–22.
Eligibility and Point of Contact
The amount of the pensions, which varies between states, is recommended by the block development office (BDO) before being approved by the sub-collector in favour of the beneficiaries.
In places like Odisha, recipients who are over 60 receive INR 300 in cash each month, and super senior people over 80 receive INR 500. While in Maharashtra, under the Shravan Bal Seva Rajya Nivrutti vetan Yojana, BPL citizens over 65 receive Rs. 600 per month, Rs. 200 from the Government of India, and Rs. 400 from the Government of Maharashtra. The recipient receives Rs. 600 in total every month.
Documents for IGNOAPS
The application form is available at the BDO’s office. The candidate must also submit certain supporting documents, such as:
BPL card
Ration card
Aadhar card
Voter’s ID
Bank Details
Passport-size photographs
The sanctioning authority must verify the information before announcing the IGNOAPS recipients list in block and gramme panchayat offices. Following that, beneficiaries’ bank or post office accounts or even cash are credited each month with their pensions.
