Observations on the Varishtha Pension Bima Yojna (VPBY ) 2017

6 Feb 2017

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The VPBY (Varishtha Pension Bima Yojna) 2017, announced by the Finance minister in his budget speech (Paragraph 70) February 2, 2017 is a helpful step for those eligible (Citizen aged 60 years and above) to cope with interest rate volatility. It will guarantee 8 percent interest rate for 10 years once it comes into operation.

The VPBY 2017 is to be managed by the LIC (Life Insurance Corporation of India) an unlisted public sector company. It will be open for 1 year after the commencement date (which as of February 6, 2017) is yet to be announced. Other details of the VPBY are also not yet announced. The indications however are that a maximum of INR 0.75 million (7.5 Lakh) could be invested in VPBY per family. Option to receive pensions on monthly, quarterly, half yearly, and annually are available.

The Scheme is designed so that if the market returns earned by the by LIC on VPBY 2017 funds fall below 8 percent, the government through its budget will make up the difference. So contingent liabilities, difference between LIC’s rate of return and 8%, will arise, and must be appropriately estimated and accounted for in the Union government’s budget statements.

Mukul G. Asher is a Professorial Fellow at the Lee Kuan Yew School of Public Policy.

This article was first published on on 6 February 2017.

Mukul Asher

Professorial Fellow