The Life Insurance Corporation of India has mopped up Rs 1,302 crore (Rs 13.02 billion) under the Varishtha Pension Bima Yojana in the first month of its launch.

Considering Rs 30 crore (Rs 300 million) budgeted subsidy for the current fiscal, this gives LIC room to collect only Rs 200 crore (Rs 2 billion) more under the special pension scheme targeted at senior citizens.

The scheme promises a return of 9 per cent and since this is not a market-related return, the Centre has assured to make good the shortfall between the promised return and the actual yield on the investment made by this corpus.

Assuming that the gap is 2 per cent, Rs 30 crore budgeted subsidy can take care of a pool of Rs 1,500 crore (Rs 15 billion).

As of August 16, LIC has sold 72,000 Varishtha policies, mopping up over Rs 1,300 crore (Rs 13 billion), since its launch by the Prime Minister Atal Bihari Vajpayee on July 14.

The issue bears significance in light of the government's announcement on Tuesday of permitting subscribers to the Employees Provident Fund to withdraw up to 90 per cent of their individual accruals for investment in the Varishtha Pension scheme, provided they are above 55 years old.

LIC is expected to seek additional subsidy from the Centre if funds from the EPFO are to be accepted under the Varishtha Pension scheme. The government will equally need to take a decision to increase the amount of subsidy, said sources close to the development.

The government had announced in the budget a subsidy of Rs 30 crore towards meeting the shortfall in terms of differential between the actual yield on investment and the assured return.

Assuming the differential to be two per cent -- taking the assured yield at nine per cent and LIC's ability to earn seven per cent -- the subsidy would meet collections of up to Rs 1,500 crore.

LIC anticipates that based on the current trend of mobilisation, Rs 30 crore will be exhausted by the end of the month. However, the actual subsidy the government needs to shell out will be based on the valuation to be finalised on March 31, 2004.

It might be recalled that LIC had twice asked the government for the issuance of high-return bonds of 10 per cent as it would help the corporation better manage its liabilities on the immediate sale of annuities.

Varishtha Pension is an immediate annuity product wherein returns start from day one. However, the government has been reluctant to issue such high-yield bonds.