The amount that you contribute through your employer towards your provident fund every month not only helps create a retirement corpus for you but also financial security net for your family. Besides monthly pension paid to employees at retirement (58 years of age), it is also paid to family members in the case of their death.
Pension under Employees’ Pension Scheme
Every month, employers deduct 12 percent of employees’ basic salary (plus dearness allowance, if any) and direct it to their Employees’ Provident Fund (EPF) account. The corpus created is handed out to employees at retirement. In addition, employers also match this employees’ contribution, out of which 8.33 percent flows into employees’ pension scheme (EPS).
However, the basic salary for the purpose of this calculation is capped at Rs 15,000 (which means Rs 1,250 flows into your EPS), unless you have opted for higher pension on actual basic salary during the window the closed on July 11, 2023. You are entitled to pension once you complete at least 10 years as an EPS member. At retirement, you will start receiving pension as per the declared formula [Pension= (pensionable salary (that is, average of last 60 months) X pensionable service)/70)].
The nitty-gritties of family pension
Under the Employees’ Pension Scheme, 1995, not only the member employee but family members—primarily spouse and children—too are entitled to pension in the case of the member’s death before or after retirement.
What is family pension?
From the pensioner’s retirement until death, s/he receives the pension as per the formula. In case of her/his death, the pension payments will not cease completely. The spouse and children, if they are under 25 years of age, will be eligible to receive the pension.
The family will receive the pension even if the EPS member has made one contribution to the pension fund before death. If the employee dies while still employed, the minimum guaranteed pension paid to the spouse will be Rs 1,000 per month.
Who is eligible to receive it?
As per EPS 95’s definition of family, spouse and children (under the age of 25 years) are entitled to the pension. This definition also covers children legally adopted by EPS members. The ‘widow’ pension handed out to the deceased pensioner’s spouse will be paid out for lifetime or until s/he remarries. If s/he were to remarry, children’s pension will be converted into orphan pension, which will be higher.
What if the EPS member is single?
In such cases, the widow pension will be paid out to dependant parents—dependant father, followed by dependant mother. As a member or pensioner, you cannot nominate anyone in particular. The payouts will happen only as per EPS rules, which means that spouse and children will automatically be the beneficiaries, unless the EPS member is unmarried or divorced.
Once married, however, any nomination in favour of others will be treated as invalid, with spouse and children becoming the default beneficiaries.
How is pension for the spouse calculated?
S/he will get up to 50 percent of the pension that the member was eligible for. Children will receive 25 percent of this ‘widow’ pension.
What is the amount of payout made to children?
The monthly children’s pension will be 25 percent of the amount paid as widow/widower pension. This amount will be paid only until the child turns 25. Also, only up to two children at a time will be eligible for this pension. If the EPS member’s child happens to be permanently and totally disabled, s/he will get the amount for life, irrespective of the number of children in the family.
If both parents are no more, the amount—termed ‘orphan’ pension— will go up to 75 percent of the widow pension. A separate bank account needs to be opened to receive children’s pension. Such children will receive ‘double’ pension if both parents were members of EPS.
What are the documents that the nominees would need to claim family pension?
They will need the pensioner’s death certificate, beneficiaries’ Aadhaar copies and bank account details, as also documentary proof of age for children.
Is the marital status of children taken into account for paying family pension?
No. The only condition is that they should not be older than 25 years.