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LIC pension plan may fall short despite subsidy hike

BS Economy Bureau in New Delhi | February 07, 2004 14:50 IST

Even the three-fold jump in government subsidy to the Life Insurance Corporation for operating the Varishtha Pension Bima Yojna could fall short on investment returns owing to falling yields and policyholders making a beeline to purchase the product, which has already seen a mop-up of around Rs 4,500 crore (Rs 45 billion).

LIC is expecting to realise around Rs 6,000 crore (Rs 60 billion) by March this year from the sale of the pension plan.

For the next fiscal, a budgetary allocation of Rs 150 crore (Rs 1.50 billion) has been made for the pension plan, with 9 per cent assured return, compared with Rs 45 crore (Rs 450 million) during 2003-04.

The government had originally allocated Rs 30 crore (Rs 300 million) for 2002-03.

LIC Chairman S B Mathur said on Friday that the life insurer would ask the government to let it issue the pension plan to more than one member per family as is the norm now. The move would result in further subsidy.

Officials said that if the Rs 6,000 crore (Rs 60 billion) target was met, a 3 per cent interest subsidy would result in an outgo of Rs 180 crore (Rs 1.80 billion) during the next fiscal.

An additional Rs 7,000-8,000 crore (Rs 70-80 billion) is expected to be mopped up by LIC during the 2004-05 which would require an subsidy of Rs 200-250 crore (Rs 2-2.5 billion) taking the total subsidy bill for the product to around Rs 400 crore (Rs 4 billion) by the end of March 2004.

"This year the pension plan was started in July, so the realisation has been lower But 2004-05 would be a full-year and with awareness increasing, the mop-up would be much higher," a senior government official said.

He added that the interest differential was widening, the government would have to seek more funds to keep the scheme operational during the next fiscal.

The Universal Health Insurance Scheme, the other subsidised insurance scheme launched by the government last year, has, however, not been as successful as the Varishtha Pension Bima Yojna.

The scheme which offers health insurance covers on payment of a premium of Re 1 a day would have a budgetary allocation of Rs 5 crore (Rs 50 million) for 2004-05 compared to Rs 2 crore (Rs 20 million) this fiscal.

The government has, however, saved Rs 70 crore (Rs 700 million) that it had budgeted for during 2003-04 as subsidy for community-based health insurance scheme to be operated by LIC.

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