What Is a Family Pension Scheme?

What Is a Family Pension Scheme?

Family pension is a gift of care and protection. It is a financial benefit provided to the dependents of a deceased employee or pensioner. It ensures that the surviving spouse, children, or dependent parents continue to receive a steady income even after the breadwinner has died. Designed as a form of financial protection, it acts as a vital social security measure and safeguards families from sudden financial hardship.

Given that financial concerns persist at every age, individuals often invest in pension schemes to create a retirement corpus or meet long-term goals. It offers peace of mind and helps families maintain stability during uncertain times by ensuring a steady income for dependents. Understanding eligibility, duration, and taxation rules empowers you to make better retirement decisions and safeguard your loved ones.

Importance of Family Pension in Retirement Planning

Family pension plays a critical role in retirement and succession planning. It not only provides financial relief to surviving dependents but also ensures long-term security for loved ones.

• Acts as a safety net for the family in case of the pensioner’s demise.
• Provides financial independence to the surviving spouse and dependents.
• Supports continuation of daily life without severe disruption.
• Helps manage expenses like education, healthcare, and day-to-day upkeep.
• Complements other retirement tools like life insurance and savings.
• Offers peace of mind knowing the family’s future is protected.

Types of Family Pension

Family pensions in India can vary depending on employment terms, government rules, and organisational policies. The common types include:

• Ordinary Family Pension: Paid to the dependents after the death of an employee who was eligible for pension.
• Enhanced Family Pension: A higher pension amount, usually payable for a fixed period after the employee’s death, after which it reduces to the ordinary pension rate
• Contributory Family Pension: Where employees contribute a portion of their salary during service to provide pension benefits for dependents.
• Non-Contributory Family Pension: Provided without direct contribution by the employee, usually as part of social security or welfare benefits.
• Disability/Invalid Family Pension: Given to dependents if the employee dies in service due to critical illness, disability, or injury.
• Special Family Pension: Higher benefits provided when death occurs due to duty-related hazards, accidents, or service-related risks.
• Liberalised Family Pension: Granted in cases where the employee’s death occurs in the line of duty, such as during military service.
• Commuted Pension – A portion of the pension taken as a lump sum, with the remaining amount paid as a reduced monthly pens
• Uncommuted Pension – The full pension amount received as regular monthly payments, without opting for any lump sum withdrawal.

Eligibility for Family Pension

Duration & Conditions of Pension Payment

The duration of family pension payments depends on the beneficiary’s relationship with the deceased and specific government or organisational regulations. In general, pensions are payable for the lifetime of the spouse and up to a certain age and circumstances for children.

Pension duration for spouse, minor children, parents

• Spouse – Receives pension for life or until remarriage.
• Minor Children – Eligible until age 25, or lifelong in case of disability.
• Parents – Receive pension only if no spouse/children are eligible.

Family Pension Taxation & Deductions

Family pension is treated differently from a regular pension under tax laws. It is considered ‘income from other sources’ and not ‘salary income’. Beneficiaries can claim:

• A standard deduction of ₹15,000 or 1/3rd of the family pension amount (whichever is lower).
• Additional deductions may apply under Section 80C, 80D, and other provisions, depending on investments and medical expenses.
• These tax rules ensure relief to surviving family members by reducing the taxable burden on pension income.

How to Apply for Family Pension

Steps to Apply:

1. Collect the death certificate of the deceased employee/pensioner.

2. Fill out the prescribed family pension application form from the employer/authority.

3. Attach required documents - identity proof, age proof, and relationship proof.

4. Submit to the pension sanctioning authority or bank.

5. Track application status and receive pension disbursal approval.

6. CPPC will then start crediting the pension in the beneficiary’s account.

Benefits of Combining Family Pension with Life Insurance

While a family pension offers steady financial continuity, pairing it with life insurance cover creates a stronger and more resilient safety net for loved ones. Life insurance ensures higher coverage during emergencies and provides additional protection against inflation and rising living expenses. Together, they offer the best of both worlds - a lump-sum payout to manage immediate needs and a regular pension for long-term stability. This dual layer of security also safeguards dependents who may fall outside pension eligibility, ensuring no gap in protection. Ultimately, the combination enhances peace of mind, securing both today and tomorrow for the family.

Common Misconceptions & Clarifications

AN Sep 58/25