What is Family Pension?

What is Family Pension?

Family pension, also known as survivor’s pension, is a financial benefit provided to the immediate family members of a deceased employee or pensioner. It is a part of various family pension schemes that provide financial support for the surviving spouse, dependent children, and, in some cases, dependent parents after the pensioner’s death. The Pension Payment Order (PPO) issued during retirement helps in processing these benefits for the nominee.

How Does Family Pension Work?

The pension entitlement for government employees is determined based on their emoluments during their service. Emoluments refer to the employee’s basic pay. When there are fluctuations in emoluments, the average of the basic pay received in the final 10 months of service is computed. The pension amount is then set at 50% of either the basic pay or the average basic pay, whichever is more advantageous.

The minimum family pension amount guaranteed is ₹9,000, while the maximum limit is capped at 50% of the highest government pay in India. Pension payments continue until the recipient’s passing.

Different Types of Family Pension

To better understand a family pension, it is important to know the different types of family pension plans available. The type of pension depends on how the beneficiaries choose to receive the benefits. Here are the two main types:

Commuted Pension

In this type, the family receives the pension as a one-time lump sum payment instead of monthly installments. This is helpful if the family needs a large amount for expenses like loan repayments, medical emergencies, or major life events. However, once the pension is commuted, no further monthly pension is paid.

Uncommuted Pension

Here, the family receives the pension as regular monthly payments instead of a lump sum. This ensures long-term financial support and a steady income for the family. The pension amount is fixed according to the family pension rules and provides continued financial security.

Who is Eligible for a Family Pension?

A family pension is given to the pensioner’s nominated beneficiary after their passing, as per the family pension rules. The main beneficiaries include the spouse and children, with specific eligibility criteria for each:

Eligibility for Spouse

• The widow or widower will receive the pension for life or until they remarry.

• If a widow has no children and her total income from all sources is below the minimum family pension amount, she may continue receiving the pension even after remarriage.

Eligibility for Children

• The eldest child receives the pension first, and when they become ineligible, it passes to the next child.

• If there are twins, the pension is divided equally.

• A son is eligible until he turns 25 years old, starts earning, or gets married, whichever comes first.

• A daughter can receive the pension until she gets married, starts earning, or reaches the age limit.

• If the family pension falls under the 1964 scheme, the benefits go to the surviving child or children.

• Adopted children are not considered eligible beneficiaries under these rules.

Family Pension Rules After the Pensioner's Death

If a pensioner passes away, their dependent family members can claim the family pension by following these steps. As per family pension rules after death of pensioner, the process involves submitting necessary documents to the bank and ensuring eligibility verification.

1. Visit the pension-paying bank with the pensioner’s death certificate and a copy of the Pension Payment Order (PPO).

1. The bank will guide you through the required process to claim the pension.

1. If the pensioner has a joint account with the spouse, submitting a death certificate and a request to activate the pension is enough.

1. If there was no joint account, the beneficiary must open a new bank account.

1. The beneficiary needs to provide PAN, Aadhaar, and a joint photograph to confirm their identity.

1. The bank will update the date of death in its records and activate the family pension.

1. Half of the PPO document will be returned to the beneficiary.

1. Once all formalities are complete, the bank will notify the Central Pension Processing Center (CPPC) and begin crediting the family pension.

How Can the Family Claim the Family Pension After the Pensioner's Death?

Claiming a family pension is a simple process. Following these steps will ensure a smooth transition of pension benefits to the family:

1. Visit the Bank: Go to the pension-paying bank with the necessary documents.
2. Submit the Death Certificate: Provide the death certificate of the pensioner along with a copy of the Pension Payment Order (PPO).
3. Check the Bank Account Type:

• If the pensioner had a joint account with the claimant, submitting the death certificate and a request to activate the pension is enough.
• If no joint account exists, the claimant may need to open a new account.

1. Provide KYC Documents: The bank will ask for proof of identity and address for verification.
2. Bank Updates Records: The bank will register the pensioner’s date of death and activate the family pension scheme.
3. Pension Starts: Once the bank informs the Central Pension Processing Center (CPPC), the pension is credited to the beneficiary’s account.

Tax Implications of Family Pension

Family pension is the monthly amount received by a deceased employee's family from their employer. Under the Income Tax Act, this pension is considered "Income from Other Sources" and is taxable.

However, there is a deduction available under Section 57(iia) of the Income Tax Act. You can claim 1/3rd of the family pension or ₹15,000 (whichever is lower) as a tax deduction. This helps in reducing the taxable income.

To report this income and pay taxes, the taxpayer must choose the relevant family pension Income Tax Return (ITR) form based on their total income and other financial details. Keeping these tax rules in mind can help in better tax planning and reducing the tax burden on family pension income.

Conclusion

A family pension is a vital financial support mechanism designed to safeguard the interests and well-being of the immediate family members of a deceased employee or pensioner. It offers a lifeline during a time of emotional turmoil and helps maintain financial stability. Understanding the significance of family pensions and how they work is essential for financial planning. Combining a family pension with a solid life insurance plan can offer complete financial protection for loved ones.

FAQs on Family Pension