Dear Friends,
There were constant complaints from Senior Citizens to RBI about the interest rate cuts that resulted in the lowering of Bank FD rates from over 9% to about 7%. Dr. Rajan explicitly mentioned this in one of his speeches and the famous “Dosa Economics” is linked to this (https://penguwin.com/rbi-governor-dr-rajans-dosa-economics/).
In the Budget 2017, the government announced a scheme which will provide guaranteed returns to Senior Citizens for 10 years and the rate would be a fixed without any changes, thereby giving some solace.
LIC of India was handed over this initiative and they have executed this (read the attachment). It is referred as single premium pension plan offering 8.3% on a annualized basis and 8% monthly.
The plan has a 10 year lock-in and the pension will be taxed at the hands of investor. Currently Senior Citizen Savings Scheme(SCSS) provides a better proposition with Investment of upto 15 lakhs, 5 Years lock-in at a interest rate of 8.4%. While the SCSS interest rates are variable in nature and linked to Government Security Yields (GSec), the probability of this rate going down further is limited.
So, the recommendation would be to exhaust the 15 Lakhs limit in SCSS before investing in this LIC Pension Scheme
<Blog # PenguWIN 1053 – For the benefit of Senior Citizens>