What Is A Family Pension Plan?

Concept of family pension under CCS (Pension) Rules 2021

The CCS (Pension) Rules 20211 (the Rules) specifies the concept and rules of family pension for government employees. Under the rules, a family pension is payable to the surviving family member of a government employee after his death, provided any of the following rules have been fulfilled –

The employee has completed one year of continuous service.

The employee died before completing one year of continuous service. However, before being appointed, the employee underwent a proper medical examination and was declared fit for government service by an appropriate medical authority.

The employee retired from service and received a pension or a compassionate allowance as per the rules, as on the date of his demise.

 

The quantum of family pension¹

The rules also define the family pension that will be payable to the deceased employee’s family. The pension is fixed at 30% of the pay, subject to a minimum of Rs.9000 per month and a maximum of Rs.75,000 per month.

However, if the government employee dies when in service, the pension amount will be 50% of the pay subject to a minimum of Rs.9000 and a maximum of Rs.1.25 lakhs per month. The pension will be paid for up to 10 years.

If the employee dies after retirement, the pension will be paid up to the lower of the two tenures –

Seven years

Till the time the employee would have attained 67 years had he survived.

The minimum and maximum pension payments for above case will be Rs.9000 and Rs.1.25 lakhs per month, respectively.

If the age of the family member receiving the family pension is 80 years and above, an additional amount of the family pension will be paid from first day of the calendar month in which it falls due. It will be as follows –

 

Types of Pension

There are two main types of pensions, depending on how the pension benefit is availed. They are:

 

Commuted Pension

Rule 5 of the CCS (Commutation of Pension) Rules, 1981, allows government employees to commute their base pension of 40% in one lump sum...

 

Uncommuted Pension

The remaining portion, which you receive as monthly payments, is called an uncommuted pension. It serves as a regular monthly source of income to handle the daily expenses of life.

For instance, if you decide to take 10% of your pension upfront, that amount becomes your commuted pension. The rest, paid every month, continues as your uncommuted pension.

 

Eligibility to receive family pension

The family pension is paid to the family member of the deceased government servant. The eligible members, in their order of priority, are as follows –

Widow or widower (including a post-retiral spouse and judicially separated wife or husband),

Children (can be adopted, biological, stepchildren or children born after retirement of pensioner),

Dependent parents (including adoptive parents) of the deceased Government servant or pensioner and;

Dependent siblings.

 

Eligibility for Spouse

The spouse, whether a widow, a widower, or even a post-retirement spouse, is first in line to receive the family pension.

Childless widows who remarry are allowed to keep receiving their late husband’s family pension, as long as their total income stays below the prescribed minimum limit and the dearness relief admissible.

 

Eligibility for Children

Pension is granted to children in order of birth; younger children become eligible only when older ones lose eligibility.

In the case of twins, the pension may be shared equally between both children.

Family pension is payable to unmarried sons up to age 25, or until they marry or begin earning, whichever comes first.

Unmarried, widowed, or divorced daughters are also eligible, usually until marriage, remarriage, or till they begin earning, whichever is earliest.

If a child has a disability, the pension may continue beyond age 25, subject to specific terms and conditions.

If both parents were under the family pension scheme, the surviving child is eligible for two family pensions when neither of them is around.

 

Family pension for missing employees

If a government employee goes missing, the family pension will be paid to the family members at a rate specified in sub-rule (2) of rule 50 of the rules, and in the manner and subject to the eligibility conditions as applicable in the case of death of a Government servant during service. The pension will be paid from the latest of the following dates –

1. The date the leave was sanctioned before he went missing.

2. The date up to which all allowances and payments have been paid to the government employee.

3. The date the police report has been lodged as a FIR or as a daily diary entry / or a General Diary Entry in the police station about the missing employee.

 

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

Before starting the payment of the family pension, the bank must collect the spouse’s identification details such as specimen signature, personal identification mark, left-hand thumb impression, proof of age or date of birth, and an undertaking for recovery of any excess payment.

Form 14 is the standard document used by banks to process family pension claims, ensuring all required details are provided without unnecessary paperwork.

If the pensioner and spouse have a joint account, Form 14 is not required. The spouse only needs to inform the bank about the pensioner’s death through a simple letter and submit the death certificate, PPO, proof of age/date of birth, and a declaration for recovery of excess payment. The bank will verify the spouse using details in the PPO and its KYC records.

If there is no joint account, the spouse must submit Form 14 with two witnesses, along with other documents.

 

Tax Implications of Family Pension

Family pension is taxable under ‘Income from Other Sources’ in the recipient’s income tax return.

If the family pension is a part of the commuted pension opted by the pensioner, or, if it is a lump sum payment, it is not taxable in certain cases.

If the family pension is received from the uncommuted part of the pension payable to the pensioner, a partial exemption is allowed¹. The exemption limit is 1/3^rd of the pension received or ₹25,000 or whichever is lower¹.

For example, if you receive ₹1,00,000 as family pension, the exemption would be ₹25,000 (since it’s lower than ₹33,333). This means ₹75,000 will be taxable.

This exemption limit was recently increased from ₹15,000 to ₹25,000 from FY 2024–25, offering more relief to pensioners’ families. However, this limit is applicable only under the new tax regime.

 

Difference Between Pension and Family Pension

A pension is a regular payment made by an employer or pension fund to a retired employee based on service, salary, or contributions. Family pension, on the other hand, is paid to the legal heirs (usually the spouse or children) of a deceased pensioner. It acts as a continuation of support after the pensioner passes away and is governed by separate rules.

   

How to Apply for Family Pension?

To apply for a family pension after the death of a central government pensioner, follow these steps:

1. Obtain Necessary Forms: Access the required application forms from the official Pensioners' Portal.
2. Complete the Application: Fill out the forms accurately, providing all requested information.
3. Gather Supporting Documents: Collect essential documents such as the death certificate of the pensioner, proof of identity, and bank account details.
4. Submit the Application: Give the completed application along with the supporting documents to the designated authority.
5. Await Processing: The authorities will process the application and, upon approval, commence the family pension payments.

 

Pension Payment Order (PPO) and Its Importance

A Pension Payment Order (PPO) is a unique 12-digit number issued to every pensioner under the Employee Provident Fund (EPF) scheme. It serves as an official record of pension entitlement and is crucial for all transactions and communications related to the pension.

Here’s why the PPO is important:

1. It helps track and receive pension payments seamlessly.
2. If you close a previous bank account and open a new one, the PPO is necessary to receive pensions in the new account.
3. Needed when submitting the annual life certificate to continue pension disbursement.
4. Useful for accessing online PPO services like pension payment status, downloading slips, and raising grievances.

 

The Role of Family Pension in Retirement Planning

Family pension provides financial stability to the surviving family members of government employees after their demise, ensuring they continue to receive a regular income. However, it alone cannot help to fulfil major life-goals like children’s higher education or marriage or medical expenses. That’s where life insurance comes in. While a family pension ensures a regular monthly income, life insurance provides a death benefit to the beneficiary to handle an immediate financial crisis.

A pension plan can complement the family pension to handle the rising cost of living and any medical emergencies. For stress-free retirement planning, it’s wise to choose a suitable pension plan so that your family lives comfortably, even when you’re not around.

 

Key Takeaway

1. Family pension provides financial support to the legal heirs of a deceased government employee under the Family Pension Scheme for Central Government Employees, 1964.
2. The pension amount for government employees can be 30% or 50% depending on factors such as the retirement date of the employee ,  number of years of service rendered , etc².
3. Eligible members under the plan are spouses, children, dependent parents, and siblings, with specific rules for remarriage or disabled children.
4. Claims require PPO, death certificate, bank and identity proofs, etc.
5. Family pension is taxable under ‘Income from Other Sources’ with partial exemption for uncommuted pensions.
6. PPO is crucial for pension management, tracking, and accessing online services.
7. Family pension complements retirement planning but may need additional savings or life insurance for larger financial goals.

 

Conclusion

The Indian government compensates its employees for the services that they render. When they are alive, they get their salaries, gratuity and pension post-retirement. Moreover, after their death, their family gets compensated in the form of a family pension which creates a source of income for their financial needs. So, consider understanding what family pension is all about and its rules.

 

FAQs

 

1. What is the family pension payable to children?

Family pension is provided to children until they reach 25 years of age, get married, or start earning a monthly income exceeding ₹9,000 plus applicable DA, whichever happens first. The minimum pay is ₹9,000.

 

2. What is the rate of family pension schemes?

The family pension scheme provides 30% of the last drawn basic pay as the normal rate. If the employee dies in service after 7+ years, the family receives an enhanced rate of 50% of the last basic pay for 10 years.

 

3. For how long can I get a family pension?

Family pension is paid to the spouse until their death or remarriage. If the widow doesn’t have a child, the pension continues after remarriage till the income from all sources is less than that provided under the family pension scheme. For a child, the family pension continues until they turn 25, get married, or start earning a monthly income above the prescribed limit, whichever comes first.

 

4. Can a family pension be transferred to another family member?

A family pension can only be transferred to another family member if the current recipient passes away or becomes ineligible.

 

5. Can a family pension be received along with other pensions?

Yes, in certain circumstances, a family pension can be received alongside another pension. For instance, a surviving spouse may be eligible to receive both their own pension and a family pension, provided they meet the specific conditions outlined in the applicable pension rules. It's advisable to consult the specific pension scheme rules or seek guidance from the pension disbursing authority to understand the entitlements and conditions applicable in your situation.

 

6. What documents are required to claim a family pension?

Key documents needed to claim a family pension are the pensioner’s death certificate, a filled claim application form, the claimant’s photograph, Pension Payment Order (PPO), identity proof, and bank account details. The pension disbursing bank may ask for some additional documents depending on the scheme.