Apply LIC jeevan varishtha bima pension yojana 2017 8% Fixed Return for Senior Citizens
Staying true to its commitment towards social security, the BJP-led government presented its 3rd Union Budget on February 1, 2017. Breaking free from the long-standing imperial practice of presenting budget on last day of February, the Union Budget for 2017-2018 actually made history in a number of ways, which are:
- Presenting budget 1 month ahead of usual practice.
- Merging railway budget with general Union Budget.
- Presenting budget despite the death of sitting MP E. Ahmed. Parliament house generally remains closed on the day when a sitting MP dies.
Anyway, the focus of this article is not on history creation but on government’s promise to provide 8% guaranteed interest earnings to senior citizens through a new insurance scheme.
Background – what let to this scheme?
The culprit is demonetization. Once demonetization rolled through India, banks experienced a surge in this liquidity and they were asked by the government to cut down on their lending rates. To compensate for the extra liquidity and reduced lending rates, the banks decided to cope with the situation by lowering the interest rates they offer on fixed deposits. This was the reason why senior citizens in India were very much in for a tough time ahead. But how?
Senior citizens depend mostly on their interest earnings from various deposit schemes. They don’t earn because they don’t work. The interest income they get from fixed deposits and other deposit schemes like PPF, KVP etc. is what they count on for survival. With banks and other financial organizations slashing down the interest rates, it became tough for senior citizens.
To deal with this crisis, PM Modi gave an approval nod to what is known as the Varishtha Pension Bima Yojana. This scheme is a combination of insurance and pension and comes with a guaranteed interest income.
Details of Varishtha Pension Bima Yojana
Though the Varishtha Pension Bina Yojana received its approval before the budget was tabled, Arun Jaitley made a formal announcement of the same during the budget speech. The salient features of the scheme are:
- The scheme will be made available only and only for India’s senior citizens. Anyone below the age of 60 years will not be eligible for this scheme.
- The scheme will provide a guaranteed return of 8%.
- The guaranteed return will be provided for a period of 10 years.
- The interest that will be earned through this scheme will be paid out to the subscribers of this scheme in form of a pension stream. The pension stream frequency can be chosen by the subscriber of the scheme. There are four possible frequencies from which a subscriber can choose:
- Pension per month.
- Pension per quarter (that is, once every 3 months).
- Pension per half-year (that is, once every 6 months).
- Pension paid out once per annum.
Who will provide the scheme and how is 8% return guaranteed?
The responsibility for designing and implementing this scheme is with LIC or Life Insurance Corporation of India – the largest insurance company (state-run) in India. It may so happen that LIC fails to earn 8% or more interest from the money it gets from this scheme and then invest in market. Yet, LIC will be forced to pay 8% guaranteed return irrespective of the market conditions and irrespective of whether the investments made are not giving the necessary returns.
This is where the Union Government will come in. In case Life Insurance Corporation is making losses or is unable to earn interest upwards of 8% from the investments because of the market conditions, the government will absorb the cost by providing subsidy.
Has the scheme been launched yet?
No, the scheme is still in its design and development phase. The execution of the scheme is yet to happen. Once the scheme is formally launched, the government will notify the same and will ensure that the subscription for this scheme stays open for 365 days from the scheme’s launch date.
The scheme will not get a nationwide opening to begin with. Only 15 districts will be chosen and a pilot project will be run to understand the shortcomings of the scheme and closing the loopholes (if they exist). Upon successful completion of the pilot run, the scheme will either be phased out gradually or it may be launched across India at once. There’s no official word on this.
Things that are not clear yet:
There are a number of things that are not clear yet. These things include:
- It is not clear whether there will be a maximum investment cap or not.
- It is not clear whether the scheme will have a pension ceiling or not.
- It is not clear whether TDS will be deducted from pension or not (as a matter of fact, the tax aspect is totally unclear for the time being).
- It is not clear whether other insurers (that is private players) will be included in this scheme or not at any later stage.
Once these clarifications are obtained, we will update the same. However, one thing that we can say for sure is that the scheme will be beneficial for the senior citizens and will be widely embraced.