How Does Family Pension Scheme for Dependents in India Work?

Losing a loved one is hard and managing finances afterwards can be even tougher while dealing with the emotional loss. To combat it, the family pension scheme has been developed. 

It refers to a monthly payment made to dependent family members of a late government employee or pensioner. It is usually helpful for the spouse, children and parents to effectively manage their living expenses after the pensioner passes away.

Quick Synopsis 

• Family pension provides monthly financial support to eligible dependents after a pensioner’s death.
• Types include Standard, Employer-specific, Insurance-based, Enhanced and EPFO family pensions.
• Eligibility covers spouse, unmarried children, dependent parents, a legally separated spouse and disabled children.
• The amount is usually 30% of the last salary, with tax deductions applicable.
• The claim requires a death certificate, PPO, KYC documents and bank submission.

Different Types of Family Pension Plans

Depending on factors such as the employment sector, reason of demise and benefits offered, there are several types of family pension plans available. The most common ones are:

Standard Family Pension

This is the basic pension plan provided monthly to the most eligible dependent (usually the spouse) after the demise of the pensioner, offering continued financial support. 

Employer-Specific Family Pension

There are several private and PSUs (Public Sector Undertakings) that offer these types of plans to their employees as part of their post-employment park. 

Insurance-Based Family Pension

Certain life insurance and pension plans include survivor benefits, ensuring financial support for the family after the policyholder's demise. The payout may be provided as a lump sum amount or as a monthly income.

Enhanced Family Pension

Some schemes come with a higher pension amount for a certain period (such as 7 years) after the pensioner’s death. This benefit applies when the pensioner passes away while still in active service. 

EPFO Family Pension

Employees who are enrolled under EPS (Employees' Pension Scheme 1995) are eligible to obtain this facility. As per the EPFO rules, the spouse or dependent children get a monthly payment if the employee passes away.

How Does a Family Pension Scheme Work?

Family pension works by providing a part of the pension monthly to the dependent eligible family members. The pension amount calculation is generally done depending on the last drawn salary or the basic pension determined for the employee who has passed away.

The specific government department or the organisation’s pension disbursing authority (PDA) regulates the entire procedure. They decide the amount and duration, considering factors such as employment type, family members’ eligibility and family pension rules.

As per the rules, the spouse is the primary beneficiary. Upon approval, the authority directly sends the pension amount to the beneficiary’s bank account.

Who is Eligible to Get Family Pension?

According to the government rules, persons who are eligible for this benefit include:

• Spouse: The widow or widower is the first eligible recipient and continues to receive this facility until death or remarriage (for special cases). 
• Children: Unmarried sons till they become 25 years old or get married are eligible to obtain this benefit. Unmarried, divorced or widowed daughters are also eligible. 
• Dependent Parents: Dependent parents receive this financial support if the spouse or children are not eligible or do not exist.
• Legally Separated Spouse: They may also receive this benefit based on specific considerations or judgments. 
• Disabled Children: Children (son or daughter) with disabilities can get this benefit. The age limit is different in these cases.

What are Family Pension Rules After the Death of a Pensioner?

The Department of Pension and Pensioners' Welfare (DoPPW) has implemented some rules for eligible candidates claiming this pension:

1. Prompt Notification: After the pensioner's death, the family must notify the PDA or their bank.
2. Death Certificate Submission: Then, submit the death certificate and Pension Payment Order (PPO) of the pensioner at the respective bank branch.
3. Checking Eligibility: The first preference is spouse, followed by dependent children or parents. For the children, the age limit is below 25 to receive this benefit.
4. KYC Verification: The bank asks for some necessary documents, such as PAN and Aadhaar, for KYC verification.
5. Pension Processed: Upon verification, the bank updates the pensioner's current condition (date of death) and starts processing the pension.
6. Pension Credited: The beneficiary receives half of the PPO back. After that, the bank contacts the CPPC and transfers the amount to the eligible recipient's account.

How is the Family Pension Scheme Amount Calculated?

It is calculated depending on several factors, including:

• Salary of the Deceased Employee: The authority generally sets this pension at 30% of the last drawn salary.
• Minimum and Maximum Limits: The scheme may also specify the minimum and maximum pension amounts, depending on applicable government rules.
• Additional Perks: Schemes like the EPF family pension provide a higher pension amount when an employee remains with the organisation for a longer period.

Tax Implications of Family Pension

This financial benefit is taxable under the "Income From Other Sources" category. A standard deduction is allowed under Section 57(iia) of the Income Tax Act, which is one-third of your pension amount or ₹15,000, whichever is lower.

For example, if your family pension amount is ₹60,000, you can claim a standard deduction of ₹15,000. Thus, only the remaining amount of ₹45,000 will be taxable.

However, you need to show this income while filing your ITR and keep the documents carefully. 

Final Word

Family pension serves as a vital safety net for dependent family members after the loss of the primary breadwinner. Whether it falls under central government rules, an employer’s pension scheme or the EPF category, it ensures timely financial support for surviving dependents.

To initiate a claim, the nominee must obtain the death certificate, fill out the required form and submit all necessary documents, including proof of eligibility and service records.