Saturday, January 25, 2014

On death of a pensioner - the pension

On death of a pensioner, or for that matter, on death of any near and dear one, there are innumerable emotions flooding the mind and the soul. No matter how deeply emotional the situation may be, someone has to keep an eye on the future, what happens to the one who is left behind? to be more specific what happens to their financial security. Here is what I learnt about the pension details after death of a pensioner ......

PS: this post is specific to Indian Govt's Ministry of Railways pension, a central govt pension and a very specific case; your case and details will differ

Having worked for the Indian Govt for a certain period of time, a govt employee is entitled to receive a monthly Pension after retirement until their death. After the person's death, their spouse is entitled to receive something called a Family Pension.

The pension amount is comprised of few components, namely;
  • Basic Pension - fixed amount, determined by the employee's last pay and pay grade
  • Dearness Allowance (Relief) - variable amount, calculated as a certain percentage of the Basic Pension, this accounts for an increase or decrease in cost of living, the % value changes every month
  • Medical Allowance - fixed amount, usually a very small and insufficient amount
  • Commutation (Adjustment) - if the employee did not retire at the typical age of 58 but worked for few more years then the govt will subtract a particular amount from every month's pension until a certain time (to account for the extra pay the person received from 58 to whenever he/she retired, or as some might say - to level the playing field!!). In this case the person retired at age 60, so couple of thousand rupees are reduced from each month's pension for 15 years from the date of retirement.
This continues until the retiree is 80 yrs old after which they receive an increase in the Basic Pension, followed by an increase at age 85, then at 90, then at 95, and then at age 100 where your Basic Pension will pretty much double!! Live large oh fragile centenarian :-|

On death of the pensioner, the govt extends the post-retirement help to the person's spouse. The surviving spouse is entitled to something called the Family Pension. Here are the details;
  • If the pensioner dies before the age of 67 then the spouse receives an Enhanced Family Pension which is similar in amount to the Basic Pension when the pensioner was alive. However this continues only until the year that the pensioner would have turned 67 if he/she were alive. Read below to see what happens after this.....
  • After the year when the deceased pensioner would have turned 67, the surviving spouse takes a hit and starts receiving a reduced amount named as Ordinary Family Pension which is usually only 60% of the pensioner's Basic Pension
  • This Ordinary Family Pension will continue until the surviving spouse turns 80, after which he/she will receive a small increase, then an increase at age 85 and the pattern continues until the age of 100 (just like the pensioner would have received if they were alive, as mentioned in the above section)
  • The Dearness Allowance will continue to be calculated by multiplying the Family Pension (Enhanced or Ordinary) by a certain % value
  • If the pensioner dies before the Commutation period is over then the commutation (monthly reduction in pension) is stopped immediately, i.e. the above mentioned couple of thousand rupees will NOT be subtracted
Every once in a while the govt may alter the provisions (Pay Commission) to increase all these types of pensions but the basic structure will remain the same.

MOST IMPORTANTLY - all this information and much more will be in a fragile piece of paper called PENSION PAPERS or PPO (Pension Payment Order) and will have a serial number named as PPO Number. It will be handed over to you as soon as you retire. Do not lose that paper and if there are any errors in it then get it changed as soon as you receive it or else you WILL suffer unless you hit a jackpot and don't care about the pension.

So thank-you oh all mighty Indian govt for taking care of your retired employees! And as for the rest of us, the non-govt employees - start planning and saving today unless you plan on jumping off a cliff after retirement or living on food stamps.

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