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What is a Family Pension?

dateKnowledge Centre Team dateJune 06, 2022 views180 Views
Family Pension | Retirement Planning

The family pension is the money offered to the family of the government employee if they die while in service. The widow/widower is eligible to receive the family pension from the government.

Family Pension Meaning

“Family pension is granted to the widow/widower and where there is no widow/widower to the children of a government servant. The employee must have entered into service in a pensionable establishment on or after 01/01/1964 but on or before 31/12/2003. Employees having entered service prior 01/01/1964 but have come to be governed by the provisions of the Family Pension Scheme for Central Government Employees, 1964.”

Family Pension Rules

The surviving spouse or children who are below 25 years of age will be eligible for a family pension if such a government servant was in receipt of a pension and has:

(i) Died while in service on or after 01/01/1964 or
(ii) Retired/died before 31.12.1963 or
(iii) Retired on or after 01/01/1964

For example, Ramesh joined the Indian Defence Accounts Service (IDAS) as a Chartered Accountant in the year 1999. His family was thrilled when he joined this prestigious central government service at the age of 30. Little did they know what fate had in store for them.

In 2020, Ramesh passed away after a massive cardiac arrest and that too while driving to work. His family was devastated. His family while mourning him, also worried about the future of their children, which was at stake due to the lost income.

However, Central Government made a provision for family pension in such events in 1972, with the Central Civil Services (Pension) Rules.

Who can Receive Family Pension?

By default, the spouse/widow of the government servant is eligible to receive the family pension. However, the following persons may also be eligible if the spouse is not present:

1. Dependent Children

Family pension is payable to the children up to 25 years of age, or until they get married or until they start earning a monthly income exceeding Rs. 9,000 + Dearness Allowance (DA) admissible from time-to-time p.m. whichever is earlier.

2. Daughters

Widow daughter/divorced daughter/unmarried daughter of deceased Government servant is also entitled to the family pension till her remarriage or up to a lifetime. However, if she starts earning a monthly income of more than Rs. 9,000 + DA the family pension will have to stop.

3. Parents

Family pension is payable to wholly dependent parents of the deceased Government servants w.e.f. 1st Jan 1998 only if the government servant is not survived by a widow or eligible child. The family pension will be payable to the mother first, failing which to the father.

4. Dependents with Disability

If the son or daughter, of a government servant, is suffering from any disorder or disability of mind or is physically crippled or disabled to render them unable to earn a living even after attaining the age of 25 years, the family pension can continue to be paid for lifetime subject to conditions.

Eligibility Criteria for Family Pension

You will need to decide and nominate the person who should receive the family pension after your demise. The rules provide the eligibility conditions for the spouse and children to receive a family pension.

a) Eligibility for Spouse

The spouse is eligible to receive the family pension amount under the following conditions only:

i. Until death or remarriage
ii. After remarriage, if childless and annual income from all other sources is less than the minimum family pension

b) Eligibility for Children

The family pension can be paid to your surviving children in the following order:

i. Pension is paid to the eldest eligible child, and will continue to the younger children after the elder ones become ineligible until they become ineligible too
ii. Twins will receive the family pension equally
iii. A male child (or widowed daughter) will receive the pension until the age of 25 or marriage or until he starts to earn
iv. If the spouse of the deceased pensioner adopts a child the child will not be eligible for a family pension after the spouse

How does Family Pension Work?

Pension depends on the emoluments drawn by the employee while in government service. In this case, emoluments mean the basic pay. Where there is a variation in emoluments, the average of the basic pay in the last 10 months of service is calculated. The pension amount is 50% of the basic pay or average basic pay, whichever is more beneficial.

The minimum monthly pension is Rs. 9000 per month whereas the maximum upper limit is 50% of the highest pay in the government of India. Pension is payable until death.

How to Calculate the Maturity Amount for your Family Pension?

You can use the online pension calculator on the pensioners’ portal. You will need to select the appropriate calculator on the page first then enter the information in the input area. Emolument for the calculation: For calculation of family pension emoluments include:

  • Superannuation After 2016: Basic pay + NPA (non-practising allowance) if applicable
  • Superannuation before 2016: Basic pay (including grade pay) + NPA (non-practising allowance) if applicable
  • Superannuation before 2006: Basic Pay + NPA + SI (Stagnation Increment) + DP (dearness pay)

After you have entered the service and retirement details the calculator can give you the basic pension, family pension and enhanced family pension amounts.

You can further estimate the commuted pension amount and pension after commutation with the calculator to help you plan your retirement.

What are the Family Pension Rules After Death of Pensioner?

The Department of Pension and Pensioner’s Welfare (DoPPW) has laid down the rules for the family members claiming the pension:

i. Show and submit the death certificate and pensioner’s Pension Payment Order (PPO) at the paying bank branch.
ii. If you have a bank account (or a joint account with the deceased spouse) in the branch then the documents above are enough to start a pension.
iii. The bank will ask for KYC documents such as PAN, Adhaar and joint photographs.
iv. The bank will start the pension after updating the date of death for the pensioner.
v. You receive half of the PPO back.
vi. After the process, the bank intimates CPPC and starts to credit the pension in your account.

What is Commuted Family Pension?

One of the salient features available to government employees is the option to convert up to 40% of the eligible pension into a lumpsum amount. A medical examination is mandatory if this option is availed after more than one year of retirement.

In such cases, the monthly pension will be proportionately reduced by the portion taken as a lump sum. Such a pension is termed Commuted Pension. However, the commuted portion will be replenished after 15 years.

Commuted Vs Uncommuted Family Pension

If the pension is commuted, the lumpsum component is not taxable. The uncommuted pension is also exempt from tax to the extent of 1/3rd of the pension or Rs. 15,000 whichever is lower.

For example, if the pension is Rs. 1 lakh, the exemption will be for a lower of Rs. 15,000 and Rs. 33,333. Therefore, only Rs. 15,000 is exempt from tax. The taxable component will be Rs. 85,000.

A family pension helps safeguard the family in case of the unfortunate untimely demise of the breadwinner of the family. However, the family pension scheme only covers the central government and a few state government employees. If you are self-employed or work in the private sector, you will need to adopt other methods of offering similar safety to your dependents. The following investments and insurance plans will help you create this cushion for them:

1. Term Insurance Plan:

Best for offering adequate financial safety to your family during your employment years. You can also cover against disabilities and critical illnesses. For example, iSelect Smart360 Term Plan by Canara HSBC Bank of Commerce Life Insurance offers both critical and terminal illness cover to help you manage your finances in case of an event.

2. 99 Year ULIP Plan:

ULIPs like Invest 4G from Canara HSBC Bank of Commerce Life Insurance allow you to invest for up to 99 years of age. Since ULIPs also have a life cover, your family is automatically protected throughout your life, even after retirement.

3. Buy Pension Plans with Life Cover:

Pension plan investments are inevitable, especially after retirement. Life insurance pension plans can help you safeguard your spouse and dependents after retirement.

You can also consider other options to mitigate financial risks like a whole life insurance plan. A whole life plan comes with a specific sum assured that is payable to the family as a death benefit. The plan also acquires paid-up value which can be useful in case of other financial emergencies.

Life insurance plans which cover critical illnesses and disabilities are helpful because they give away a fixed lumpsum amount on detection of critical illness or permanent disability. If you want your family to be financially safe even when you are not around, it is better to have a comprehensive plan in place. With these multi-purpose investments, you can ensure benefits like a family pension and other financial safety benefits for your family.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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