VARISHTHA PENSION BIMA YOJANA (VPBY) was a Government subsidized scheme announced for Indian Citizens aged 55 years and above, in the Union Budget 2003-04 (Atal Vajpayeeji’s tenure). Now, this plan will be re-launched by the current central government.
VARISHTHA PENSION BIMA YOJANA (2003-04) Plan:
When the scheme was launched in 2003, over 3 lakh people had purchased annuities generating a corpus of Rs 6,095 crore. The main features of old plan were as below.
- Indian Citizens aged 55 years and above were eligible.
- One time premium payment of Rs 33,000 fetched a lifelong monthly pension of Rs 250.
- One time premium payment of Rs 2.66 Lakh would give a lifelong monthly pension of Rs 2000
- The offered return was 9% p.a.
- In the event of unfortunate demise of the pensioner (policyholder), the premiums paid (purchase price) will be returned to the nominee/legal heir of the pensioner
VARISHTHA PENSION BIMA YOJANA (2014-2015) Plan:
The current central government is re-launching the above scheme. The main features are:
- Indian Citizens aged 60 years and above were eligible.
- The plan will be open for subscription from 15-Aug-2014 to 14-Aug-2015
- One time premium payment of around Rs 66,665/- fetches a lifelong monthly pension of Rs 500.
- One time premium payment of Rs 6,66,665/- would give a lifelong monthly pension of Rs 5000 (maximum).
- Ceiling of maximum pension is for a family as a whole i.e. total amount of pension under all the policies issued to a family under this plan shall not exceed the maximum pension limit. The family for this purpose will comprise of pensioner, his/her spouse and dependents.
- Policyholder can opt for monthly, quarterly, half yearly or yearly pension payment.
- The assured return is 9% p.a. Effective annually yield works out to 9.38% for monthly pension.
- In the event of unfortunate demise of the pensioner (policyholder), the premiums paid (purchase price) will be returned to the nominee/legal heir of the pensioner.
- The pension income is taxable in the hands of pensioner. The tax rate depends on his/her income tax slab.
- Life insurance Corporation (LIC) will be the exclusive administrator for the scheme.
- Loan (up to 75% of subscribed amount) can be availed after 3 years from the Date of Commencement.
- Loan up to 100% after 15 years
- The policy can be surrendered after completion of 15 years. The Surrender Value payable will be refund of Purchase Price. However, under exceptional circumstances, if the pensioner requires money for the treatment of any critical/terminal illness of self or spouse then the policy can be surrendered before the completion of 15 years and the Surrender Value payable shall be 98% of Purchase Price.
- Pension Payment will be through ECS or NEFT.
Required Documents for Varishtha Pension Bima Yojana Plan:
- One passport size photo of the proposer (life assured).
- Copy of the Photo ID proof
- Copy of Address proof
- Any certificate to confirm the Date of Birth
- Bank passbook copy / Cancelled cheque
- If the premium amount is more than Rs1 Lakh then source of income documents compulsory (like Income Tax Returns etc.,)
Premium Chart (table) for Varishtha Pension Bima Yojana scheme:
Important points to consider before opting for VPBY:
Premium: The main target group for these kind of plans are lower income group and rural families. The premium amount is a one time payment and locked up. The pensioners cannot withdraw the amount to meet any unforeseen expenditure. If you have limited retirement corpus or income generating options then think twice before you opt for this plan.
Individuals who are recently retired: An Individual who has just retired may still has long life expectancy. It may not be prudent to straight away go for pension plans like these. The main financial goal for a retiree would be to get a stable income. But at the same time, this income also has to grow every year to meet the raising expenses (especially food/medical). The rate of income growth should atleast meet (if not beat) the rate of inflation growth.
Retirees who have taxable income: For retirees who are in taxable income brackets, better options would be debt mutual funds or tax-free bonds.
Stable Income: Senior citizens who can not manage the retirement corpus on their own and want stable returns can opt for this plan.
This plan Vs Bank Deposits: The current interest rate on bank deposits for Sr. Citizens is around 9.5 to 10%. This rate may look attractive. But they may vary from year to year. Someone who is seriously looking to invest the retirement money in Bank Fixed deposits may consider this plan.
Considering the rate at which the inflation (medical,food prices etc.,) is rising, the retirees are better off in identifying a product mix which can beat the inflation rate. These investment options can be identified based on the risk taking capacity, age and goals. Retirees who are aged above 75 years may find these type of pension plans more suitable.
Latest Update (25-Nov-2017) : As per the recent Govt’s notification, an individual eligible for receiving the benefit under the VPBY Scheme is hereby required to furnish proof of possession of Aadhaar number.
(You may like visiting my post on “Comparison of Varishtha Pension Bima Yojana with Kisan Vikas Patra – 2014).”
The marketing capabilities of the current central government and LIC may make this product a success story. But end of the day, it is your heard-earned money. Consider above points before you invest.