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What is Family Pension?

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What is Family Pension
October 30, 2024

Table of Content

 

Financial stability is a concern at any age. Individuals invest in a savings and pension scheme to create a retirement corpus or for long-term financial goals. A family pension is a benefit provided to the dependants of a deceased employee by an employer or government. This benefit is given to the widow, children, or any other eligible member of the family and serves as financial security in the absence of the breadwinner. It is a part of the employment benefits and is designed to ease financial hardship. The benefit is provided only to employees who have been a part of the pensionable establishment on or before January 1, 1964. Those who have joined the establishment on or before 31st December 2003 get the pension benefit. 

While a family pension can be a valuable source of income, it's important to consider life insurance as a complementary financial protection. Life insurance can provide a lump sum death benefit to beneficiaries, offering additional financial support during a difficult time, especially when combined with a family pension

Read on for more about eligibility criteria, types of family pensions, etc.

Types of Family Pension

Further, to understand what is family pension, it is important to know about the different types for an informed decision. The family pension is categorised depending on how the family intends to avail of the pension benefit. The types of family pensions are:

  • Commuted Pension

    • The family can receive the pension benefits in lumpsum if they opt for a commuted pension. The beneficiaries can opt for a lump-sum amount for large expenses like paying off debts or to use it for major life events. The specifics of commuting pension depend on family pension rules.

  • Uncommuted Pension

    • An uncommuted pension creates a regular income stream for the family's sustenance. The beneficiary receives a monthly pension which gives long-term financial stability to the family. The entire pension is converted into monthly payments and is subject to family pension rules.

How Does a Family Pension Work?

As per the pension rules the pension fixation depends on the salary drawn by the employee while in service. Here, salary refers to the basic pay. If the emoluments vary, the average of the last 10 months’ basic will be considered. If the government employee dies while in service the family pension is fixed at 50% of the last pay drawn for the first 10 years. Thereafter, it is paid at 30% of the last pay drawn.

On the death of the pensioner or family pensioner, the family pension is paid at the enhanced rate of 50% of the last pay drawn for the first seven years, and thereafter, it is paid at 30% of the last pay drawn.

Who is eligible for a Family Pension?

The pensioner has to nominate the beneficiary of the family pension after his/her death as per family pension rules. The pensioner's spouse or children are eligible for the family pension. The family pension eligibility criteria for each of them to receive the benefit are given below:

  • Eligibility for spouse

    • The widow or the widower will receive the pension till he/she is alive or remarries. If the widow has no children, she will continue to receive the family pension even after remarriage if the income from all sources, i.e., salary, house property, business or capital gains, is below the minimum of the family pension.

  • Eligibility for children

  • The family pension is given to the eldest child till he/she becomes ineligible for the survivor benefits.
  • In the case of twins, the family pension will be distributed equally.
  • In the case of a son, he is eligible for the pension till he turns 25, starts earning, or gets married, whichever happens earlier.
  • If the spouses come under the provision of family pension 1964, the benefit is given to the surviving children or child.
  • If the child is adopted, he/she is not treated as a family member of the deceased pensioner.

Family Pension Rules After the Pensioner's Death

The following family pension rules are laid down by the Department of Pension and Pensioner’s Welfare for the claim of dependent benefits after the death of the pensioner.

  • Approach the concerned pension paying along with the death certificate of the pensioner and one-half page of the PPO, i.e., pension payment order.
  • The bank official will guide you through the bank’s procedure for claiming the family pension.
  • If a joint account exists with the deceased spouse, providing a death certificate and a request to activate the pension will suffice.
  • If there is no account, the beneficiary has to open a bank account.
  • The beneficiary has to submit the PAN, Aadhar Card, and a joint photograph to the bank to establish the identity.
  • The date of death of the pensioner will be updated to activate the family pension.
  • Half of the PPO will be returned to the beneficiary.
  • After completing the process, the bank will inform the CPPC and start crediting the pension to the beneficiary’s account.

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

The family pension claim process is simple. The procedure is given below:

  • The beneficiary has to visit the pension-paying bank and submit the death certificate and half a portion of the pension payment order (PPO).
  • If the pensioner does not have a joint account with the claimant, a new account has to be opened.
  • If a joint account with the spouse exists, submitting the death certificate and an application to activate the pension will serve the purpose.
  • The beneficiary has to provide the necessary KYC documents.
  • The bank will update the date of death of the pensioner in their records and activate the family pension scheme.
  • The bank will then inform the CPPC and start crediting the pension to the beneficiary’s account.

Tax Implications of Family Pension

Family pension 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:

Pension

Family Pension

Pension is a retirement income that the employer or the government provides to its employees based on their service and contribution during their service.

A family pension is given to the family member of the pensioner in the event of the death of the pensioner while in service or after retirement.

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 schemes?

The family pension is calculated at 30% of the last pay drawn by the deceased pensioner. However, if the pensioner has completed seven years of service, the pension is enhanced to 50% of the last pay drawn.

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.

Conclusion

Financial security in the absence of the breadwinner is crucial for a family. Considering this aspect, the government introduced the family pension scheme. The family pension extends the benefits of retirement and pension to the family members of the deceased pensioner. It is a great way to reduce the financial burden of the family in times of crisis.  

Such as, the commuted pension given in a lump sum is particularly advantageous since it relieves the family's financial responsibilities by paying off large debts.   

You can also calculate the proposed family pension using a pension calculator and plan investments in other schemes if you have to enhance the financial security of your family.

Reference

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

ARN: ED/07/24/13275

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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