Commuted Pension: Big news for pensioners. The 8th Pay Commission is actively engaged in discussions with various organizations. Employees and retirees are eagerly awaiting the Commission’s report to see if their proposals are accepted. During talks with the Commission, central government employees are pushing for modifications to the longstanding commuted pension rule, which has been in effect for 39 years. There are concerns that the current 15-year commuted pension rule is putting pensioners at a disadvantage, resulting in higher payments for commuted pensions.

What is the commuted pension rule?

Commuted pension is a provision that allows employees to receive 40% of their basic pension as a one-time payment upon retirement. In exchange, a fixed amount is deducted from their monthly pension for the next 15 years. This means that they will only receive their full pension after the 15-year period.

Call for a change in the 15-year rule

Employee groups are urging a reduction in the current 15-year commuted pension rule, which has been in place for 39 years, to 11 to 12 years. They argue that the 15-year duration is no longer suitable for the present circumstances. A memorandum submitted to the Commission highlights the significant changes in interest rates, average life expectancy, and mortality rates over the past 39 years, emphasizing the need to update the recovery period.

Calculations show that if an individual commutes Rs 100 per month from their pension at the age of 61, they would pay Rs 1200 annually and receive a lump sum of Rs 9833 based on a commutation factor of 8.194. However, Rs 12000 is deducted from their pension within 10 years, and Rs 18000 within 15 years. This results in twice the lump sum amount being deducted, while the recovery of the amount occurs in 10 to 11 years.

Various pensioner organizations, including the National Council of the Joint Consultative Machinery (NC-JCM), All India Defence Employees’ Federation (AIDEF), and Federation of National Postal Organisations (FNPO), are advocating for different time frames for the restoration period:

– NC-JCM, AIDEF, and FNPO are requesting an 11-year restoration period.
– The Indian Railways’ Technical Supervisors’ Association is proposing a 12-year restoration period.
– The All India New Pension Scheme Employees Federation is seeking a 10-year restoration period.
– Bharat Pensioners Samaj and All Pensioners Association are also in favor of an 11-year restoration period.

Reasons for the call to reduce the restoration period by pensioner bodies:

– The NC-JCM argues that the current 15-year restoration rule was established almost forty years ago based on financial and actuarial conditions of that era. They believe that changes in interest rates, life expectancy, mortality rates, and actuarial risk factors necessitate a reevaluation of the restoration period.

– To exemplify, for a 61-year-old pensioner, the commutation factor stands at 8.194. This means that for every Rs 100 of monthly pension commuted, the pensioner would receive Rs 9,833 as the commuted value.