The Varishtha Pension Bima Yojana, a much-awaited scheme announced for senior citizens in the Union Budget-03, was finally announced on July 14, 2003. Life Insurance Corporation has been given the sole privilege to operate this scheme.
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Salient features
'Senior citizen' as defined for the purpose of this Yojana, is a person above the age of 54.5 years (55 years nearest birthday). For this purpose, proof of age is essential.
Those who cannot give such a proof can sign a suitably worded document on a stamp paper in presence of a notary and submit it to LIC along with the application.
When LIC first announced the scheme some time ago, it had for some strange reason, said that the proponent shouldn't be older than 79. The scheme does not cover any life insurance and therefore, the premium rates are not age-specific.
Nevertheless, this limit was imposed unilaterally, though the Budget had not envisaged any such limit. Thankfully, this ceiling has been dropped altogether. The scheme will provide an annual return of 9 per cent p.a.. It will be open for sale during the current financial year 2003-04 and may be reviewed after one year.
The shortfall, if any, between the total payout by LIC and the earnings on the corpus of the scheme, will be reimbursed to LIC by the Central Government.
The pensioner has the option of choosing the periodicity of the pension -- monthly, quarterly, half-yearly and yearly. The monthly pension will start from the month following the payment of the lump sum premium by the citizen.
The pension will be paid to the pensioner during his lifetime. The same rule applies to the pensions with differing frequencies.
|
Pension chart | |||||
|
Mode of |
Minimum |
Premium |
Maximum |
Premium |
Rate of |
|
Monthly |
250 |
33,335 |
2,000 |
266,665 |
9.38 |
|
Quarterly |
750 |
33,085 |
6,000 |
264,675 |
9.38 |
|
Half-yearly |
1,500 |
32,715 |
12,000 |
261,710 |
9.38 |
|
Yearly |
3,000 |
31,980 |
24,000 |
255,845 |
9.38 |
On the demise of the pensioner, purchase price will be returned to the nominee or the legatee as the case may be.
The minimum pension will be Rs 250 and the maximum has been put at Rs 2,000 per month.
The ceiling applies to the family as a whole. The family comprises spouse, minor children and dependants. In other words, different persons in the same family can apply but the total pension received by the family should not be above the limits.
While inaugurating the scheme in Mumbai, the Petroleum Minister Ram Naik said that he would try to get this restriction on the ceiling for the family dropped.
Though it was not envisaged earlier, a fair amount of liquidity has now been thankfully provided. An exit option is available after 15 years.
Moreover, the loan facility is available to the extent of 75 per cent of purchase price after three years. The rate of interest on loan is 10.5 per cent. The interest rate on loan will be decided by LIC from time to time.
The scheme is not open to non-reident Indians.
Yes, the rate declared is 9 per cent p.a., but in actual practice, thankfully, it works out at 9.38 per cent for all the modes of payments.
Uncertainties
Nowhere has LIC said whether this pension will be tax-free or not. Many persons have observed that the finance minister, while announcing the scheme in his budget speech, had said that this would be tax-free. I don't think he made any such statement.
However, we can be guided by the fact that the pensions from all the LIC's other pension schemes are taxable. What about tax deducted at source? Yes, all the other LIC pension schemes suffer application of TDS.
LIC should have clarified these aspects.
To be or not to be
The scheme is not attractive at all. Post Office monthly income scheme is much better. It offers equivalent of 9.66 per cent with its 8 per cent monthly interest plus 10 per cent bonus at end of the term of six years. The ceiling on investment is as much as Rs 600,000 for joint applicants and Rs 300,000 for single applicants.
Moreover, MIS is covered under Section 80L and it appears that the Yojana is not. Therefore, those who are tempted by the high interest of 9 per cent in spite of it being taxable, should first turn to MIS, exhaust the limit of Rs 600,000.
Taxpayers in any zone should turn to People's Provident Fund where the 8 per cent tax-free interest coupled with the tax rebate surpasses the 9 per cent taxable returns of the Yojana by miles
To sum up
Even if it were thrown open to everyone, senior citizen or not, I do not think anyone should be interested. I am surprised that so many people are making a beeline to buy the scheme.
The Varishtha Pension Bima Yojana is due for a review after a year. Hope Jaswant Singh will review it in the right spirit.