Categories: Investment Planning

Varishtha Pension Bima Yojana-How much beneficial?

Government of India is about to launch a pension plan called Varishta Pension Bima Yojana on 15th August 2014. It is treated as best pension plan because returns quoted as more than 9%. However, let us look at its feasibility and to whom it will be suitable.

Features-

Minimum age for entry is 60 Yrs.
One time investment of minimum Rs.66, 665 and maximum investment of Rs.6, 66,665.
Minimum pension will be Rs.500 and maximum Rs.5, 000 per month.
It offers a guaranteed return of 9%.
You have various options to choose pension like monthly, quarterly, half-yearly or yearly.
On the death of a pensioner, the nominee receives the invested amount back.
The maximum pension limit is not only for individuals, but also to the whole family. Family for this purpose constitutes pensioner, spouse, and dependents.
The pension will directly credited to your bank account through ECS/NEFT. No cheque issue or you are going to the LIC office to collect a pension.
One can surrender only after 15 years. Surrender value will be equal to purchase price.
However, in case of surrender before 15 years for any medical emergencies of his or spouse, then such surrender value will be 98% of the purchase price.
One can avail loan after 3 years. The maximum loan will be 75% of the purchase price.
Loan interest will be adjusted to pension payment. However, one can settle principal at settlement time.

So is it good retirement product?

1) This plan is available only from 15h August 2014 to 14th August 2015 (as currently declared by Govt). Therefore, for those who already invested somewhere and unable to liquidate it may find it difficult to invest in this plan.

2) Good if one is expecting an interest rate downturn in the future. Because banks can’t pay your same consistent amount in the long run. However, here it is fixed irrespective of interest rate fluctuation.

3) Whatever you get from this plan as pension will be taxable income. Therefore, you need to consider a post tax return than simply opening your eyes at 9% interest.

4) This pension will not take care of inflation. So, irrespective of the raise in expenses, you receive a constant stream of income.

5) This good for those who look for safety (Govt’s sponsored and managed by LIC), constant stream of income or who not care about inflation at their retirement life.

7) Setting a maximum limit of Rs.5, 000 per family is somewhat difficult to manage at the current trend of inflation and if pensioners have some health complications.

8) The best option is of payment directly to one’s bank account.

9) Liquidity is not an issue after 15 years. However, before 15 years, it will be only for health emergencies. So it will be hard for pensioners until 75 years of their age if they have some other emergencies.

10) Even though loan is available, but it eats the interest part and as it is adjusted for pension again reduce the income stream.

What do to?

Don’t invest in this product if you are concerned about inflation.
Don’t invest in this product if you need cash before 75 years of age as you have option to liquidate it only in case of medical emergencies.
Don’t invest in this product if you know how to manage your retirement corpus.
Don’t invest in this product if you are unable to manage your expenses with Rs.5, 000.
Don’t invest in this product if your family retirement corpus is more than Rs.6, 66,665.

BasuNivesh

Next Comparison of Senior Citizen Savings Scheme (SCSS) and Varishtha Pension Bima Yojana 2014 »

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View Comments

Govindaswamy says:

August 14, 2019 at 12:25 PM

Is the pension taxable income
- Basavaraj Tonagatti says:
  
  August 14, 2019 at 1:50 PM
  
  Dear Govindaswamy,
  YES.
PRABIR CHOUDHURY says:

March 21, 2017 at 10:18 PM

I am a policy holder of varistha pension bima yojana since bagining and getting the assured amount in my account in due time. But on scrutinizing it observed incomplete in my address. Advise in this respect is accorded to rectify.
- Basavaraj Tonagatti says:
  
  March 22, 2017 at 3:11 PM
  
  Prabir-You have to update this with insurer.
manohar says:

July 27, 2015 at 6:43 PM

varshth pension yojna.is the investment comes under 80-c?
- Basavaraj Tonagatti says:
  
  July 27, 2015 at 7:01 PM
  
  Manohar-It will not come under Sec.80C.
Avinash says:

May 20, 2015 at 3:54 PM

(1) My friend invested 6,66,666 + Service tax in February 2015.
After new budget the "service tax " was withdrawn. This made investors before 1st April 2015 as "April Fool" and now the scheme is much cheaper.

(2) After much delay by LIC in issuing and receiving Policy and reading some clauses (within Free looking period of 15 days), He decided to 'Cool Off' . As per existing rules LIC shall refund the total money invested + service tax and deduct only the Registration Charge.

(3) Meanwhile my friend received the Annuity from LIC due to delay in issuing the Policy document.

Can LIC deduct the Annuity already paid ? If so under which rule ?

(4)Rule about refund is silent about Annuity already paid before receipt of Policy ?
- Basavaraj Tonagatti says:
  
  May 20, 2015 at 5:35 PM
  
  Avinash-I think they deduct the annuity already paid to you. I know the rules may be silent. However, this may be the end result.
  - avinash says:
    
    May 20, 2015 at 6:31 PM
    
    In case they deduct then my friend has a loss of keeping his investment idle for such a long time, just because LIC delayed the issuing of Policy document ? Had LIC issued the Policy document immediately or within a reasonable time ( week or so) then this loss could have been avoided. IRDA guidelines are also clear in this regard.
    - Basavaraj Tonagatti says:
      
      May 20, 2015 at 7:30 PM
      
      Avinash-I can understand your concern. However, usually free look in period starts only after you get the policy bond but not immediately after issuing the policy to you. Hence, the delay clause may tilt towards them.
manab bhattacharjee says:

April 4, 2015 at 12:05 PM

so scss is better than bpby as it allow tax benifit u/s 80c. Am I right
- Basavaraj Tonagatti says:
  
  April 4, 2015 at 4:08 PM
  
  Manab-When it comes to investment, yes SCSS have an edge. But returns from both are taxable.
dharmendra says:

April 1, 2015 at 1:13 PM

""Service Tax Exemption on VPBY Effective April 1, 2015""

is this correct news ???

If it is correct, what about all those investors who have invested in this scheme till date?

i think who have invested after this declaration in budget .. they have done a big mistake.. as per my calculation they are loosing 0.25% interest on his investment for life..
- Basavaraj Tonagatti says:
  
  April 1, 2015 at 1:42 PM
  
  Dharmendra-Yes the news is true. But losers will be those who already invested.
Durgesh says:

February 27, 2015 at 10:43 AM

Senior citizen have no much income only they get Pension and Interest from their savings.
As per current law the limit is Rs.3 lac If any one to invest in this Scheme is they Fill 15 G or 15 H form for not deduction of T.D.S. if they are not taxable. As I read the scheme it says that Pension paid after deduction of T.D.S. then what is the rate? and it's deducted by L.I.C during the payment of Pension?
- Basavaraj Tonagatti says:
  
  February 27, 2015 at 11:56 AM
  
  Durgesh-Why you are more concerned about TDS? Even if there is no TDS then too it is taxable income. So you have to file return showing this as taxable income.
  - guest says:
    
    March 5, 2015 at 2:16 PM
    
    A senior citizen is exempt from filing return if income less than limit. If TDS is applicable then either for 15/16 to be submitted or unnecessary return to be filed for refund. If TDS amount is Rs.500 and cost of filing return is Rs.600 what is the use? It is unnecessary harassment for senior citizen to visit bank for this TDS issue as well as loss of income excluding if say auto rickshaw takes Rs.200 for visiting bank.
    - Basavaraj Tonagatti says:
      
      March 5, 2015 at 4:22 PM
      
      Guest-I understand your concern but not the policy makers :)
pk aggarwal says:

February 12, 2015 at 5:24 PM

I believe that the investor in this scheme has to pay the service tax himself. I have a feeling that payment of service tax in itself would be quite complicated. Please elaborate.
- Basavaraj Tonagatti says:
  
  February 12, 2015 at 10:56 PM
  
  PK-Why you feel paying service tax so complicated?
Govind says:

February 8, 2015 at 5:18 PM

Is the principle amt invested by me refundable on completion of 15 years , kindly clarify .
- Basavaraj Tonagatti says:
  
  February 8, 2015 at 5:59 PM
  
  Govind-It is already answered above. Yes after completion of 15 years you can come out of the plan and get whatever you invested.
Ramachandran Namboodirio says:

December 16, 2014 at 9:44 AM

it is observed that the amount needs to be invested in order to receive Rs. 5000 per month as interest in Varishta Pensin Bima Yogna is erronuously stated elsewhere as Rs 2,66,665. Please be noted that in order to getRs 5000 interest per month you need to invest Rs. 6,66,665 and NOT Rs.2,66,665. You also need to pay 3.09% as service tax on the same.

thanks
- Basavaraj Tonagatti says:
  
  December 18, 2014 at 12:51 PM
  
  Ramachandran-Thanks for sharing info.