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.
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.