February 14, 2017

Varishtha Pension Bima Yojana 2017 -Features and Review

The government of India recently approved the launch of LIC’s Varishtha Pension Bima Yojana 2017 or VPBY 2017 for Financial Year 2017-18. Let us see the features, benefits and who can invest.

This is the social benefit program meant for low-income group age old people. Let us see the features

Features of Varishtha Pension Bima Yojana 2017

# This scheme will be implemented through LIC of India. Therefore, a big boost to those who feel security.

# This is a single premium product like LIC’s Jeevan Akshay VI.

# This scheme provides the GUARANTEED return of 8%. During the falling interest rate, this seems to be an eye-catching headline.

# Term of the scheme is 10 years. Hence, once you invest in this scheme, then you will be eligible for 8% returns for next 10 years.

# Eligible for those whose age is 60 years and above.

# You can opt for the pension on a monthly/quarterly/half-yearly or annual basis under the Varishtha Pension Bima Yojana 2017.

# Varishtha Pension Bima Yojana 2017 will be available for subscription from FY 2017-18. It will be available for investment for a year from the date of launch. As of now, the date of launch is not available.

# Minimum investment is not yet specified. However, the maximum investment limit is Rs.7,50,000 (As per PM Modi in his New Year Eve’s address).

# You will receive the pension directly into your bank account.

How Varishtha Pension Bima Yojana 2017 works?

I tried to show you how the scheme works using below simple image.

Varishtha Pension Bima Yojana 2017 (VPBY 2017)

You notice from the above image that RISK is totally NIL. Whether LIC generates 6% or 4%, it does not matter to you. Rest of the shortfall will be fulfilled by Central Government.

Tax Benefits of Varishtha Pension Bima Yojana 2017

As of now, there is no clarity on this front. However, there was tax benefit while investing under the Sec.80C limit when this scheme was launched in 2014-15. Also, during that time it was mentioned that return from this scheme will be taxable.

However, there is no clarity on this issue. Hence, it is premature to comment anything on this.

Earlier withdrawal under Varishtha Pension Bima Yojana 2017

In 2014-15 issue, exit from this scheme was allowed if the pensioner dies or due to specific ailments. However, this is not clear as of now in case of Varishtha Pension Bima Yojana 2017.

Should you invest in Varishtha Pension Bima Yojana 2017?

1) Let us assume that the maximum limit is Rs.7,50,000. So the monthly pension will be Rs.5,000. This monthly pension will remain same for the rest of 10 years.

Hence, at first instant, it fully fails to take into consideration the biggest enemy called INFLATION.

2) Do you survive with mere Rs.5,000 during your old age? Especially when one need higher medical cost and other age-old related caring costs. The answer is NO.

Hence, it is not a single product on which you must rely for your retirement expenses.

3) Taxation is not yet clear. However, if we follow the earlier issues of this scheme, it is clear that interest income will be taxable. Therefore, if you are below tax exemption limit, then your income from this scheme will be 8%.

But it is not same with others who fall into higher tax brackets. For example, if you are under 30% tax bracket, then the post-tax returns will be 5.6%.

Hence, never assume that your earnings from the investment are 8%.

4) You can consider this plan if your retirement corpus is Rs.7,50,000 and looking for stable returns than any market linked, then this seems to be the best.

5) Liquidity is one more issue in such products. You can exit from this plan either in case of certain ailments or death of investor. However, what if you face with other than these emergencies?

6) The positive point is that you no need to worry about default risk (as it is Government scheme) and also interest rate risk (as the returns are fixed for 10 years).

7) Also, one more risk you hand over to your spouse in case of your sudden demise is diminished value in the money. Let us say you invested today Rs.7,50,000. If you die after 5 years, then LIC will give the initial lump sum invested amount to your spouse. It means your wife will receive Rs.7,50,000 after 5 years.

However, the point to be noted is whether the today’s Rs.7,50,000 will be same after 5 years? No right? Then you risk your spouse life with less money.

8) I am not sure whether this scheme is sold through an agent or online. Also, what are the advantage if one buy this online (exactly like LIC’s Jeevan Akshay VI). Let us wait for clarity.

These are the initial features of Varishtha Pension Bima Yojana 2017. I will update when this plan actually launch for subscription.

25 Comments

  1. I have invested in pension scheme of private insurance company. This is maturing after I attain senior citizenship status. The insurance company is insisting I go in for their post maturity pension schemes which offer much less interest and no control on corpus . What can I do in the circumstances ? The Government has introduced many schemes for senior citizens as SCSS, Varishta Pension etc, but they are of no use if one cannot transfer pension funds to these schemes.Many people would have invested in private pensions in their earning years as no nobody keeps liquid cash to invest in Goverrnment Pension schemes when attaining 60 years. Please advise.

    Reply
    • Sunilkumar-Whether that is the mandatory thing to buy the annuity from them only? Whether it is written on the existing policy bond?

      Reply
      • Basavraj ji

        That is what they indicate in correspondence.. They also mention option to purchase pension from another Insurance Company known as the Open Market Option. I am not sure what this is. My concern is if they insist annuities be purchased from them are there any options for me to refuse on grounds that as senior citizen I be entitled to higher interest given by Government.

        Reply
        • Sunilkumar-If there is a clause that YOU MUST buy an annuity, then better to stick to LIC’s Jeevan Akshay VI.

          Reply
          • Basavraj ji,

            The policy has an option called Open Market Option (OMO) where I can buy pension scheme from an insurer of my choice. However on my request now for exercise of the same the Insurance Company has categorically replied that SCSS and Varishta Pension schemes do not come under this option though there was no such exclusion in the policy. I find this strange. What can I do about this?. If the finance ministry introduces these schemes and the insurance companies shoot them down, what can be done?. On the issue of surrender, the company has replied that penalty as per policy would be applies while calculating surrender value which is fine.But the shocker is that 18% GST would be applicable shrinking the surrender value further.Is this true? I would like to write to the ministry. Can you guide me about this?

            Reply
            • Sunilkumar-Yes, they are right as the SCSS and Varihta Pension Schemes are not annuity plans. You have to buy annuity plans like LIC’s Jeevan Akshay VI. Rates of GST will be applicable as per the rules.

              Reply
  2. good.also inform senior citizens of 60 yeaesa and above about RBI- SCSS-8.3% INTEREST PAID QUARTERLY – 5 YERAS SCHEME.THE BEST OF ALL CURRENT AVAILABLE OPTIONS.YOU MAY EXTEND SAME BY 3 YEARS AFTER 5 YEAR PERIOD.INT.TAXABLE. BUT GIVE 15 H , IF U ARE BELOW TAXABLE LIMIT.
    ALSO RBI 8% INT,SCHEME IS ALSO THERE INTEREST PAID 6 MONTHLY TAXABLE . ALSO GIVE 15 HIF BELOW TAXABLE LIMIT

    Reply
  3. Hi Basu,
    Could you mention the best pension instrument currently available in India. I do understand for the best returns we should not be depended on one particular instrument but purely as pension requirement what would you recommend.
    For example, if i have 25 -30 years ahead of me and my monthly requirement would be 25k per month(Today’s value). To get same value after 25-30 years how much would i need to invest monthly or which instrument’s would be the best. Of course there is lot of hypothetical elements but i like to know the available options…( No epf as am an NRI 😉

    Reply
  4. No meaning to invest IN IT as spouse will not get any benefits and also no interest also so a BIG NO NO.

    Reply
  5. Excellent! The article is so informative. There are discussions on the article as above. But I am looking the article in a different prospective like the information you have provided is very good. This information is not available at one place. That you have done it and thrown it for discussions. All the best.

    Reply
  6. Dear Basavaraj sir,
    Very good article once again. Sir, I should say one thing, neither UPA nor NDA govts like old age people. How can they survive with meagre 5000 rupees per month pension, when their medical expenses are around 3000 per month? INFLATION as well as FALLING INTEREST RATES have made the life of retired people miserable. The best thing should be TAX THE AGRI INCOME after certain limit and EXEMPT OLD AGE INCOME FROM TAX. India is the only country which taxes oldmen and exempts young taxpayers in the name of AGRI income. Poor people are these old people, they are NOT NEEDED BY THE GOVT, NOR NEEDED BY THEIR CHILDREN. Where they should go sir? WHEN THIS INDIA WILL CHANGE AND LEARN TO RESPECT SENIOR CITIZENS sir?
    regards
    RAJESH PAI

    Reply
    • Rajesh-This is what I pointed. The social security is a MUST need when we turn old age. But sadly NO Government in the mood to address their issues. They are all to woo people for the sake of the election.

      Reply
      • True sir, Agree with you

        Reply
    • I completely agree with this. I am a young man but I realize that old people need some financial security in their life. How is anyone supposed to live for 30 years after retirement without any kind of financial security? It is government’s responsibility to ensure social security for senior citizens but instead government chooses to tax them. Indian government really do not care about it’s citizens. Just tax everyone is the mantra.

      Reply
  7. The UPA Govt. and NDA Govt. both, are neglecting the pensioners of EPF-95. They are getting merely Rs.750 to Max Rs.3240 pension per month. So, in my view This the best invest scheme for Pensioners, those are getting their pension under EPF-95 scheme.
    According to my information; At present there is celling of Rs.3240 /month for EPF -95pension. Can any one have exact info about this ?

    Reply
    • Rajendra-EPS is different than this scheme. Don’t combine both.

      Reply
      • OK Sir, I am only saying that, those who are getting the EPS-95 pension, they should invest in this scheme other than MIS.

        Reply
        • Rajendra-There are many ways to use your retirement corpus to generate the monthly income.

          Reply
  8. Dear sir,
    good and prompt article on VARISHTHA PENSION YOJNA BUT

    Before giving any example you must verify facts if you are an expert!
    You mentioned an example of 6%by LIC OF INDIA and 2%by GOVT. Of INDIA

    How you derived at 6% while LIC is alredy giving 6.87%to senior citizens and that too lifelong through his Jivan Akshay yojna

    Pls. Look the details and make a suitable example according

    Reply
    • Punit-Am I said LIC definitely provide 6% returns ONLY? Check the image properly and I clearly mentioned in the headline of that image itself that HOW IT WORKS. Also, I mentioned that “LET US SAY LIC generates 6% returns”. I think you must better concentrate on what I wrote. I never written in above post that LIC generates ONLY 6%. Am I said so??

      Reply

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