Varishtha Pension BimaYojana is administered by LIC and is a single premium pension policy. Looking at the increasing demand in India for this policy for the enhancement of social security and welfare of senior citizens Vatishatha Pension BimaYojana was revived by the Government. In this policy, the post-tax return is guaranteed to be 9%-9.8% p.a.

The Government has removed the Varishtha Pension BimaYojana from the preview of Service Tax in Budget 2015 in order to make this policy more appealing. With effect from 1st April 2015, there is no service levied on the premium paid towards this scheme.

Let us learn more about the details of this scheme –

  • Minimum Entry Age– LIC Varishtha Pension BimaYojana is only available to the individuals who are 60yrs and above. However, there is no limit on the maximum age for a person to enter in this policy. This policy can be entered only by Indian citizens.
  • Time limit– This scheme is open for subscription only for a small period of one year.
  • Returns– Varishtha Pension BimaYojana assures a rate of return on the policy of 9% which amounts to 9.38% return annually.
  • Lock-in Period– under this policy the investments get locked in for a period of 15 years.
  • The rate of Investment– In this policy, the minimum investment is fixed at Rs 66, 665/- with a ceiling limit of Rs 6, 66,665/-.The ceiling limit of this policy applies to the dependents, whole family, and spouse.
  • Payout Option–The policyholder can decide as to how he wants his dependents or a nominee to get paid. He can opt for monthly, quarterly or annual option depending on the need.
  • The amount of Pension– In Varrishtha Pension BimaYojana the amount of pension ranges from Rs 500/- to Rs 5000/- per month. This amount depends on the investment amount and also which pay-out option is chosen. This pension amount is paid during the lifetime of the pensioner.
  • Withdrawal– In case of any unforeseen event like critical/serious illness of spouse or self or in the case of sudden death, the policy can be surrendered before 15 yrs.The value of surrender would be given after deducting 2% as a penalty for premature withdrawal.
  • Loan Facility– This policy give a benefit of a loan up to 75% of the value of the investment after 3 yrs of policy completion.
  • Payment to the Nominee– In the case of death of the policyholder, the nominee gets the full investment amount.
  • The option of Free-look period– Like any other insurance policy, this policy also offers for a Free-look period.

Service Tax Exemption in Varishta Pension BimaYojana –

 According to the last year Budget 2015 there is a Service Tax exemption given to the policyholders on the investments made.However, people who have already invested in this plan prior to April 2015 will not enjoy this tax exemption would feel neglected as the returns which they get would be lowered because of the implication of service tax. Before service tax used to be at the rate of 3.09% on the invested amount because of which the implication is on the guaranteed rate of return gets reduced by almost 0.27%.

Drawbacks of Varishta Pension BimaYojana –

  1. In this policy, the maximum pension amount is Rs 5000 which after the maturity of 15 yrs does not suffice the basic needs of the investor.
  2. The ceiling limit of this policy included the whole family because of which the maximum pension amount cannot be higher than Rs 5000.
  3. The taxability of the pension lowers the returns and gets the pension to 8.1% to 8.44%.
  4. Liquidity is also one of the drawbacks in this scheme as the money gets locked in for a period of 15 yrs with premature withdrawal charges of 2%.

In my opinion, it is wise to invest in this plan if a person who retires is not looking for higher returns and who falls in the low tax bracket of 10%.