The government may rope in private insurance companies to market the Varishta Pension Bima Yojana -- a special pension scheme that guarantees a nine per cent fixed return -- if the state run insurance company, the Life Insurance Corporation of India fails to meet the government's expectations in terms of actual sales.

The Centre officially approved the scheme last week. It will be launched by month end, subject to Insurance Regulatory and Development Authority clearance.

Meanwhile, SBI Life Insurance Company has taken the lead and has finalised its "Pension Tatkal" scheme offering immediate annuity. The company has received clearance from the IRDA, said SBI Life managing director and CEO R Krishnamurthy, who added: "We will launch the product shortly."

With LIC's investment return close to seven per cent, the government will have to subsidise the scheme to the extent of about three per cent to take care of the shortfall as well as the scheme's expenses. LIC's existing product for senior citizens -- Jeevan Akshaya -- yields around seven per cent.

While giving the administrative approval last week, the government did not approve of any of LIC's suggestions in terms of the eligibility criteria of policyholders.

LIC wanted a bar on the income level of the policyholders opting for the scheme. "This would have made most retirees in Mumbai ineligible to participate in the plan," said senior LIC officials.

LIC chairman S B Mathur told Business Standard that the organisation expects to roll out the much awaited scheme by the end of June and has calculated a likely premium collection of Rs 2,000 crore (Rs 20 billion) through the sale of this special pension plan.

"Being akin to a single premium product, we do not expect to mop up more than Rs 2,000 crore as it will mean a large one-time investment," said Mathur.

The scheme assures a guaranteed return of nine per cent with the capital returned on the death of the policyholder.

"We expect the product will be picked up by the middle and upper middle class," said LIC officials.

This nullifies the actual purpose of introducing the scheme in order to guard the interest of the lower strata of society.

Individuals seeking a monthly pension of Rs 200 would need to make a one-time contribution of Rs 33,000. A monthly Rs 2,000 pension would mean a one-time payment of about Rs 240,000. It is an attractive investment proposition for senior citizens in the age bracket of 55 to 75.

Said Mathur: "The scheme was devised particularly for those who had planned out their retirement based on interest income."

With falling interest rates, the government has decided to cross-subsidise the returns through tax-payers' funds.