Which LIC pension plan works best for you? Jeevan Akshay VI, New Jeevan Nidhi and PMVVY are on offer. We help you decide which one to pick.
Jeevan Akshay VI
Here, you pay a lump sum to LIC and in return, LIC pays you a fixed sum of money for a certain period of time.
Eg: You pay LIC a sum of Rs 10 lakh on 1st January 2017. In return, LIC pays you Rs 60,000 per year (pre-tax) for the rest of your life.
Eg: You pay LIC a sum of 10 lakh on 1st January 2017. In return, LIC pays you Rs 50,000 for the rest of your life and the same amount after your death to your wife for the rest of her life.
You can get this money monthly, quarterly or annually, as per your choice. This type of pension plan is called an ‘annuity.’ There are many types of annuities. The annuity types offered by LIC under Jeevan Akshay VI are:
Annuity for life
This is the simplest version of an annuity. In this option, you pay a lump sum to LIC and in return, LIC pays you a fixed sum of money for the rest of your life. The annuity payments stop when you die. If the total amount you have received from LIC over the years is less than the lump sum you paid, too bad. However, in return for this feature, the annuity rate in this type of plan is higher than the other options on offer. The rate offered also increases rapidly as you grow older (because statistically, you are more likely to die with advancing age).
The second Jeevan Akshay VI option pays you an annuity ‘certain’ for a period of 5, 10, 15 or 20 years and thereafter for the rest of your life. In other words, if you die within the ‘certain’ period of 5/10/15/20 years, your heirs will continue to get the annuity for the rest of the ‘certain’ period. Payments will stop thereafter. Since this is a slightly better deal than ‘annuity for life’, the annuity rate (what LIC pays you) is also lower than the latter.
Annuity with return of purchase price
As the name suggests, in this type of plan, the lump sum you have paid LIC is returned to your heirs upon your death. Thus although the regular payments will stop on your death, your lump sum is returned. This sounds like a much more attractive plan, however, it is important to note that the annuity rate on this option is much lower than its counterparts.
Annuity for life increasing at a simple rate of 3% per annum
In this option, the payment is made to you for your lifetime and stops after your demise. However, it has an ‘add-on.’ The regular payment is increased at a ‘simple rate’ of 3% per annum. Here’s an example:
Note: Here, your 3% increase is not ‘compounding’. Your interest is not earning interest.
Annuity with provision for spouse
In this variant, LIC will pay you and your husband/wife after your death for the rest of his/her life. This amount could be exactly the amount it paid you or 50% of the amount it paid you. There is also a third variant in which it pays your spouse the same pension and then returns the lump sum you have paid, to the heirs.
So what are the rates currently being offered by LIC on Jeevan Akshay VI?
Here’s the table of regular payments, for a lump sum of Rs 1 lakh.
|Age last birthday||Yearly annuity amount under option|
|( i )||( ii ) (15 years certain)||( iii )||( iv )||( v )||( vi )||(vii)|
i-Annuity for life, ii-Guaranteed Annuity (15 years), iii – Annuity with return of purchase price, iv-Annuity increasing at a simple rate of 3%, v – Annuity for spouse (100%), Annuity for spouse (50%), vi – Annuity for spouse (100%) with return of purchase price.
If you buy an annuity under Jeevan Akshay VI online, you get a 1% higher rate. That’s quite something!
The regular payment that LIC makes to you under any of the annuity options listed above is taxed according to your slab.
New Jeevan Nidhi
This a conventional insurance policy which offers you a sum assured on your life and also a return linked to the profits earned by LIC.
It also gives you:
- Guaranteed additions equal to 5% of the sum assured for each completed year with the policy for the first 5 years.
- A simple reversionary bonuses and final additional bonus
It is difficult to work out the return on this policy because it is linked to the profits that LIC is offering to share with you. These depend on the performance of the company.
On maturity, you can use the amount you receive to buy an annuity from an LIC in two ways.
1) The annuity can either start right away or
2) You can invest the matured lump sum as a single premium for a policy that will mature further down the line.
Insurance premiums paid towards New Jeevan Nidhi will be eligible for deduction up to Rs 1.5 lakh from Section 80 CCC. The maturity amount is also tax-free under Section 10(10)(D). However, once you use the maturity amount to purchase an annuity, the annuity payments you receive will be taxable.
Pradhan Mantri Vaya Vandana Yojana (PMVVY)
The PMVVY although marketed as a pension is essentially a fixed deposit with the Life Insurance Corporation of India (LIC). It is open to people above the age of 60. The minimum amount you can invest in the PMVVY (monthly option) is Rs 1.5 lakh and the maximum amount that you can invest is Rs 7.5 lakh.
This is fixed at 8%.
The PMVVY matures after 10 years. In case of your death in this time period, the investment amount is paid to your heirs. Partial exit from it is also allowed in case of critical illness and 98% of your deposit is paid back. On maturity, you get your entire deposit value back. You can invest in the PMVVY here.
Contributions to the PMVVY do not carry any tax deduction. The interest on it is also fully taxable. Interest on the PMVVY can be taken monthly, quarterly or annually. On maturity, your principal is returned to you.
Which one to choose?
The answer depends on your circumstances. Jeevan Akshay VI and PMVVY are more suited to people who are very close to retirement and are highly risk-averse. Being government and public sector-backed, they offer a high level of safety and a guaranteed return. The rates on these schemes are not very high but are looking increasingly attractive as fixed deposit rates fall across banks. The simple annuity option under Jeevan Akshay VI also offers attractive interest rates after the age of 70 (11.6%) and 80 (17.4%).
New Jeevan Nidhi is more suited to someone who is still earning and saving up for a pension than someone at the age of retirement.