If you are a senior citizen (above 60 years) or have a parent who is >60 years of age, this article is for you.
On Aug 15, 2014, the Govt. of India re-launched a scheme that benefited 3.16 lakh senior citizens in the past – the Varishtha Pension Bima Yojana (VPBY). In our view, the scheme is an immediate annuity scheme and a wonderful one to opt for senior citizens especially in the low to middle income segment – gives 9.38% returns (through an annuity) for the entire LIFETIME of the pensioner (if you are 60, you will get the 9.38% yield till you die, which could even be as high as 30 years from now, or sometimes higher), without any risk (because it is a Govt. of India scheme run by LIC) and the invested amount is returned to the nominee once the pensioner is gone.
It takes the Govt. a lot of effort to afford this kind of scheme from its already stressed coffers. So this is a limited scheme – (1) this is available up to a maximum of the scheme pension limit (Rs. 5,000 per month) for a family and (2) you can apply for it only for 1 year, i.e. till Aug 14, 2015.
So here are all the details on LIC Varishtha Pension Bima Yojana 2014-2015.
|Eligibility||Any Indian citizen who has crossed 60 years of age. Beyond 60, the scheme benefits are the same for all ages. Available up to a maximum of the scheme pension limit (Rs. 5,000 per month) for a family (self, spouse and dependents).|
|Premium Limits||Minimum (paid one-time only) – Rs. 66,665 for monthly pension, Rs. 66,170 for quarterly pension, Rs. 65,430 for half-yearly pension or Rs. 63,960 for yearly pension.
Maximum (paid one-time only) – Rs. 6,66,665 for monthly pension, Rs. 6,61,690 for quarterly pension, Rs. 6,54,275 for half-yearly pension or Rs. 6,39,610 for yearly pension.
|Pension Limits||Minimum Pension – Rs. 500 per month, Rs. 1,500 per quarter, Rs. 3,000 per half-year or Rs. 6,000 per year.
Maximum Pension – Rs. 5,000 per month, Rs. 15,000 per quarter, Rs. 30,000 per half-year or Rs. 60,000 per year.
|Maturity/Liquidity||The scheme is valid till the end of life – get pension till death, and the nominee gets the money back later. You can exit from the scheme if you choose to, only after 15 years. However, if the pensioner or her/his spouse contracts a critical/terminal illness, she/he can choose to stop the scheme and take the invested amount back with a nominal one-time deduction of 2% of investment.|
|Interest||Interest rate for LIC Varishtha Pension Bima Yojana 2014-2015 is 9% per annum, but if pension is taken every month, the yield is actually 9.38% per annum. In fact, monthly option for pension is recommended..
Interest is automatically credited to the linked bank account through ECS/NEFT only and not as cheques/DD.
|Mode of Pension Payment||Monthly, Quarterly, Half-yearly, Yearly pension options are available. The first installment starts after 1 month, 1 quarter, six months or 1 year after the premium is deposited with LIC.|
|Life Certificate (or Existence Certificate)||This is a certificate that needs to be submitted periodically to prove that the pensioner is alive and so that the pension keeps coming. Almost all pension plans need it. This plan needs it too; here’s a sample of the form – LIC Existence Certificate or LIC Life Certificate.|
|Tax Benefits on Premium/Investment||None.|
|Tax Benefits on Pension Earned||None. Pension is treated as income in the year that it is earned.|
|Tax Deduction at Source (TDS)||None.||Loans||After completion of 3 years of pension, you can take a loan of up to 75% of the invested premium. The interest is deducted from the pension payable. Interest accrues depending on the pension frequency. In case the loan exists at the time of death or exit from the scheme, the outstanding amount is deducted from the invested premium and then the balance is returned.|
|Free-look||Like an other product sold by LIC, VPBY also has the free-look option, i.e. return of the investment within 15 days of getting the scheme document, in case you are not satisfied with the benefits quoted or without quoting any reason whatsoever.|
|On Death of the Pensioner||Pension stops and the original premium amount (net of any outstanding loan if availed of) is returned to the nominee.|
|Taxes and Surcharge||Service tax and surcharge are chargeable at the time of investment. Expect roughly 12.36% on the deposit amount. This amount is a one-time expense and is not returned to the nominee on death, or on closure of the scheme.|
To the left is a Pension Calculator of LIC Varishtha Pension Bima Yojana 2014-15 – click on the image to see the details. It is taken from LIC.
Our verdict remains that the LIC Varishtha Pension Bima Yojana 2014-15 is a great opportunity for senior citizens to avail of a guaranteed, zero-risk, regular income option with good returns. We’ve been asked about how LIC Varishtha Pension Bima Yojana 2014-15 compares with the Senior Citizens Savings Scheme (SCSS). Honestly, the two are not comparable since they fulfill very different objectives – one is for the long term, and the other for the short run. Here’s an explanation by what we mean by that.
- SCSS is a limited-period scheme to park idle money, while LIC Varishtha Pension Bima Yojana 2014-15 is a long-term decision you make on your overall pension corpus. You could even choose to have both.
- LIC Varishtha Pension Bima Yojana 2014-15 is a guaranteed scheme @9.38% till you die, which could even be for 30-40 years. In our view, interest rates in the next 2-3 decades will be lower than this level, hence VPBY is a good deal. In any case, there is an exit option in 15 years. For SCSS, the time horizon is at best 5 (+3) years and the rate is announced by the RBI along with PF rates, and will keep changing every year. At best, it is marginally better than FD rates. Again, not comparable.
Another thing. Whenever you compare two financial products, for Heaven’s sake, don’t end up comparing features, benefits and costs. Just check which one fits your needs better and don’t bother too much about anything else.
Hope these perspectives help you arrive at a decision. To invest in the LIC Varishtha Pension Bima Yojana 2014-15, you can go through LIC, so meet an LIC agent or contact your nearest LIC branch. You can also go through certain banks – check with the bank where you have an account.