Family Pension

Table of Content

1. Types of Family Pension

2. Secure Your Retirement with Our Pension Plans

3. How Does a Family Pension Work?

4. Who is eligible for a Family Pension?

5. Family Pension Rules After the Pensioner's Death

6. How can the family claim the family pension after the pensioner's death?

7. Tax Implications of Family Pension

8. Difference Between Pension And Family Pension

9. FAQs on Family Pension

10. Conclusion

A family pension scheme provides a steady flow of a monthly income covering the daily expenses and other financial needs of any dependents in case of the demise of the earning member. Unlike a regular pension that an employee receives after they have retired, a family pension covers their dependents so that they are not left financially vulnerable.

Aside from this, such a scheme also ensures that the contributions to a pension fund made by a deceased employee during their employment do not go to waste. Hence, this scheme extends the benefits of a pension to the surviving and dependent family members.

Depending on the different types of employers, there are several categories of pension schemes for families in India. Suppose an individual is working as an employee of the central government, under the Central Civil Services (CCS) framework, they ensure a pension for their family.

The state government follows state-specific guidelines, while defence services have their exclusive family pension schemes, especially in instances like deaths in the line of duty. Employees registered under the EPFO can ensure a family pension as per EPS-95. While some private companies offer pensions through contributory retirement schemes.

Types of Family Pension

Different family pension types define how dependents receive financial support in case of the demise of a primary earner. Understanding these categories helps assess payout duration, benefit amount, long-term financial stability and more:

1. Commuted Pension

A commuted pension allows a pensioner to withdraw a percentage (typically 40%) of their pension as a lump sum payment rather than regular periodic payouts. Pension authorities calculate this lump sum using commutation factors and pension rules applicable under the respective scheme.

In most cases, this commutation option applies to a retiree’s pension and does not contribute directly to the family pension benefits. However, it may help indirectly. Suppose an individual commutes their pension, but due to an unfortunate event, they pass away.

With this lump-sum amount, their family members can manage financial obligations, address emergency financial needs, and more. The reduced pension payouts upon commutation also help dependents deal with daily living expenses to some extent.

2. Uncommuted Pension

An uncommuted pension refers to the regular and periodic payment (generally monthly)that a deceased employee’s or retiree’s dependents receive. Compared to the commuted pension, which does not allow a lump-sum withdrawal, this type provides a predictable source of income, instilling stability.

If an employee or retiree has subscribed to a family pension, it follows the structure of an uncommuted pension type. In this type, there are normal and enhanced pensions, where the dependents receive 30% (Basic Pay + DA) and 50% of the last drawn salary, respectively. Thus, a commuted pension emphasises long-term security rather than immediate liquidity.

How Does a Family Pension Work?

It works by continuing a certain portion of the core pension that the deceased pensioner would receive. Pension authorities may also calculate this pension based on the last drawn salary of a deceased employee. In schemes like the enhanced family pension, dependents typically receive a higher amount for the first few years.

This is usually a fixed period (typically 7 years), after which their payout generally reduces and continues at a standard rate. This especially happens if an employee passes away during their active service tenure. However, depending on family pension rules, employment type, and other factors, pension amounts and duration may vary.

Here, a spouse of a deceased employee or retiree becomes the first eligible pension recipient. Dependent parents, children and other eligible family members are the further priorities.

Who is eligible for a Family Pension?

Keeping in mind the financial security aspects for your loved ones in your absence, you must know who is eligible for a family pension. Typically, your spouse, children, dependent parents, and other family members are eligible depending on conditions:

1. Eligibility for spouse

The primary eligible recipient of family pension is the spouse( i.e. wife or husband) of a deceased employee or retiree. An individual whose earning spouse is deceased is typically entitled to a pension for life, unless they are disqualified under certain scheme rules.

In most cases, a widow may still be eligible for the pension after a remarriage, whereas this provision may be stricter for a widower. Defence pensions typically provide wider benefits to widows of soldiers who have died in the line of duty. It ensures they maintain financial stability even after a remarriage.

2. Eligibility for children

You may wonder whether my children are also eligible for the family pension? Here, you must note that your spouse is the priority. Sons are eligible for the pension until the age of 25, provided they remain unmarried and unemployed. Daughters are also eligible up to this age or until their marriage, whichever occurs earlier.

Unmarried daughters are eligible if they have no independent source of income and both of their parents are deceased. Widowed daughters are eligible if their income is insufficient and they receive a minimum amount. Disabled children are eligible for a lifelong pension.

3. Eligibility for Other Dependents

Other dependents, such as parents of a deceased employee or retiree, can become eligible for a family pension. In case an employee or retiree dies without leaving a spouse or children. In such cases, the mother of a deceased usually takes priority over the father.

Such a provision is included in family pension norms to acknowledge that parents may also be dependent on their children, especially in families without multiple earning members.

Family Pension Rules After the Pensioner's Death

To ensure that your family remains financially secure, you must note the applicable rules to enable the pension for your family members in your absence. Here are the detailed rules that you must convey to your dependent family members to keep them informed:

• Immediate Intimation: Dependent family members must inform the Pension Disbursing Authority (PDA). They must visit the bank where the deceased used to receive their salary or pension.

• Submission of Crucial Documents: To begin receiving the family pension, eligible family members must submit the required documents. These include the deceased's death certificate, their PPO, identity proofs of the nominees, marriage certificates, etc.

• Eligibility Hierarchy: A spouse has priority, followed by their dependent children. Parents who have been dependent on deceased earning members come next.

• Age Criteria: Eligible children must be under 25 years to avail the benefits of this type of pension.

• Remarriage Clauses: For widowers, this pension may stop if they were a dependent and remarry after the death of the earner.

How can the family claim the family pension after the pensioner's death?

In case of the demise of a retiree or an employee, their eligible family members must follow the steps below:

Step 1: The claimant or the dependant must approach the bank where the deceased employee or retiree used to receive their payouts.

Step 2: If that deceased employee or pensioner had a joint account with their spouse, they can apply to activate the pension scheme by providing the death certificate. If there is no joint account, the claimant must create a new bank account.

Step 3: In addition to the death certificate, the claimant must produce the Pension Payment Order. An identity proof like an Aadhaar Card, a proof of relationship, a residence proof, etc., is also important.

Step 4: After proper submission of the documents, the banking authorities will review the application and documents and activate their pension scheme. Upon activation, dependents will start receiving the eligible amount in their bank account.

Tax Implications of Family Pension

Family pension scheme means a regular monthly amount payable by the employer to a person belonging to the family of an employee in the event of his death.

Accordingly, after the death of employee, the family pension received by family member of the employee is taxable under the head "Income from other sources" as per Section 56(2) of the Income Tax Act^#. A sum equal to 1/3 of such income or Rs 15,000, whichever is less, is allowed as a deduction under section 57(iia) of the income Tax Act while computing income chargeable to tax.

Depending upon the head of income and other conditions, taxpayer shall choose the relevant ITR to report such income and pay taxes accordingly.

Difference Between Pension And Family Pension

Government employees are entitled to the benefits under the pension scheme. Individuals invest in various insurance pension schemes or other schemes like NPS (National Pension Scheme) in addition to the pension provided by the employer for robust retirement planning.

Both pensions aim to provide financial security to different beneficiaries under varying circumstances. The basic difference between the pension and the family pension is:

FAQs on Family Pension

Q. What is the difference between a pension and a family pension?

The difference between a pension and a family pension is that the pension is the benefit passed on to the employee by an employer or government upon retirement. Family pension is the pension benefit transferred to the eligible members in the event of the death of the employee while in service or after retirement.

Q. Who is eligible for the family pension?

The family members eligible for the family pension are the spouse and dependent children of the deceased pensioner. The family pension is paid to the eldest of the children till he/she is ineligible for the benefit. In the case of a male child, the benefit is provided till he reaches 25 years of age, gets married, or starts earning a living, whichever is earlier. An adopted child is not eligible for the family pension.

Q. How is the family pension calculated?

The family pension is calculated based on the basic salary of the employee. The family pension paid is 30% of the last pay drawn. If the employee has completed seven years of qualifying service, the pension can be enhanced to 50% of the last drawn pay.

Q. What is the minimum pay for a family pension?

Family pension is paid to the children till they attain 25 years of age or start earning an income of Rs. 9000 p.m. plus D.A., or get married, whichever is earlier.

Q. What is the rate of family pension?

The rate in the normal family pension scheme is 30% of the basic salary with DA. However, the enhanced rate is 50% of the last drawn salary by a deceased employee.

Q. How Long Does Family Pension Last?

The family pension is paid to the widow or widower till death or remarriage, whichever is earlier. If the widow is childless, the family pension will continue until her income from all sources is below the minimum family pension.

Q. Can Family Pension Be Transferred to Another Family Member?

The family pension can be transferred to another family member only when the existing recipient dies or becomes ineligible for the family pension. For instance, in the event of the death of the deceased pensioner, the family pension can be transferred to the dependent child. The oldest of the dependent children will get the pension and it can be transferred to the next child in order when he/she becomes ineligible for the pension.

Q. What is the new rule of family pension?

The new rule for this pension is that a widowed individual can now keep the pension-related benefits after remarriage. This also makes step and adopted children eligible dependents.

Conclusion

The family pension is a social security scheme where dependent family members receive pension amounts in case of the demise of the family's primary earner. In terms of eligibility, the spouse, children and dependent parents can apply for this pension. By submitting the death certificate, PPO, and other documents, dependents can receive this pension.

Reference

https://pensionersportal.gov.in/Document/Handbook_on_Family_Pension.pdf

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