TO COMMUTE OR NOT TO COMMUTE PENSION

Whenever any retiring officer approaches us for advice, invariably the question of whether or not to commute the pension comes up. This article deals with this issue so that all officers, retired or retiring, would be able to make up their mind more knowledgeably.
Before we take a call on the same, a few connected issues need to be understood clearly:-

1. Basic Pension is exactly half of your last drawn Basic Salary. And Basic Salary for the purposes of pension calculations is Basic + Grade Pay + Rank Pay.

2. Whenever commutation is done, only the Basic Pension gets commuted, never the DA received. Thus, after commutation also, the DA is received on full value of Basic Pension.

3. Commutation can be done of any value from 0% to 50%. However, generally almost all the officers get 50% commutation done, if they go in for it.

4. Commutation is done based on a factor of commutation set by the Government which depends on the years of service that you’ve put in. To put it more simply, it is the time adjusted Present Value of your future pension.

5. Pension is restored exactly 15 years after first commuted pension is received by you.

6. Though not confirmed, probably commutation can still be done within one year of retirement, if the officer has not done commutation and wishes to change his decision.

Now, let us understand the difference between a commuted pension and an uncommuted pension. We’ll understand it by an example.