New Delhi, Jul 21 (PTI) Finance Minister Arun Jaitley today said the Pradhan Mantri Vaya Vandana Yojana (PMVVY) will provide a "respectable" rate of return to senior citizens at a time when interest rates are falling globally.

PMVVY is a pension scheme exclusively for senior citizens (aged 60 years and above) which is available from May 4, 2017 to May 3, 2018.

It provides an assured return of 8 per cent per annum payable monthly (equivalent to 8.30 per annum effective) for 10 years.

During the formal launch of PMVVY here, Jaitley said "there is a critical balance which we have to maintain. We live in a world where for the efficiency of the economy, our banks and other institutions are expected to lend at an affordable rate and if the lending rates go down obviously borrowing is also impacted that is considered essential and inevitable for an efficient economy.

"But it then throws an incidental problem which is also very important issue to be addressed, which is that the senior citizens really want a no-risk investment and they want a non fluctuating and ... reasonable rate of return because (they are) not being gainfully employed at that age."

Appreciating the various features of the scheme, Jaitley said the policy has got a fairly encouraging response since its soft launch in May.

LIC has sold 58,152 PMVVY schemes garnering ₹ 2,705 crore since its soft launch on May 4.

"This is a scheme which was announced by the Prime Minister which ensures a real return of 8.30 per cent, which in today's world of reducing interest rate is fairly respectable rate of return particularly for senior citizens and it is exempted from service tax or GST," he said.

It is a return which is not going to fluctuate during 10- year life of the policy, he added.

Talking about other features of the scheme, the finance minister said pension is payable at the end of each period, during the policy term of 10 years, as per the frequency of monthly, quarterly, half-yearly or yearly as chosen by the pensioner at the time of purchase.

The policyholders can avail loan up to 75 per cent of purchase price and the loan interest will be recovered from the pension instalments, while the loan will be recovered from claim proceeds.

The scheme also allows for premature exit for the treatment of any critical or terminal illness of self or spouse. On such exit, 98 per cent of the purchase price will be refunded.

On death of the pensioner during the policy term of 10 years, the purchase price will be paid to the beneficiary.

The shortfall owing to the difference between the interest guaranteed and the actual interest earned and the expenses relating to administration shall be subsidised by the Government of India and reimbursed to the LIC.

Noting the growing market share of LIC, he said, "Normally experience has been that all such institutions which were initially promoted by government have normally excelled in monopoly environment, but the real test comes when they are in competitive environment."

LIC clearly stands out as a shining example which even in competitive environment is a market leader, he said.

In addition to its normal function, he said, LIC has been discharging a very important social responsibility.

"Whenever social schemes are launched, it is LIC which becomes critical factor because they are the normal administrator of the scheme and they have the wherewithal and apparatus to expand the scheme," he said.

Guaranteed pension returns under PMVVY provide fixed periodic income and government subsidy to protect retirees. PMVVY creates a pension product for persons aged sixty and above offering an assured rate of return payable at purchaser chosen frequencies over a fixed ten year term, allows loans against the purchase price with recovery from pension instalments and claim proceeds, permits premature exit for critical or terminal illness with near full refund, provides death benefit payment of the purchase price to beneficiaries, and contemplates government reimbursement to the insurer for any shortfall between guaranteed and actual returns plus administrative expenses.