Pension commutation calculator

How commutation is worked out

Under the Central Civil Services (Commutation of Pension) Rules, 1981, a central government pensioner can give up (commute) up to 40% of the basic pension for a one-time lump sum, called the commuted value of pension:

Lump sum = pension commuted per month × 12 × commutation factor

The factor depends on your age next birthday on the date commutation becomes absolute. If you apply with your pension papers, that is the day after you retire, so someone retiring at 60 uses age 61 and a factor of 8.194. The table, used for every commutation that became absolute on or after 2 September 2008, is based on LIC mortality tables and an 8% interest rate, so the factor falls as age rises. It stops at age 81.

Commutation factor at common ages

The commutation guide has the full table for every age from 20 to 81.

Which date fixes your age

• Applied with your pension papers: commutation becomes absolute the day after you retire.
• Applied in Form 1 within a year of retiring: it becomes absolute on the day your Head of Office receives the form.
• Applied more than a year after retiring: you need a medical examination, and it becomes absolute on the day the medical authority signs its report. The authority can add years to your age if your health is poor, which lowers the factor, and you can then withdraw the application within 14 days.

Any fraction of a rupee in the pension commuted is ignored, and the lump sum is rounded up to the next rupee.

What happens to your monthly pension

• The basic pension paid drops by the amount commuted, from the day the lump sum is paid.
• Dearness Relief stays on the full pension. DR is worked out on the basic pension before commutation, so the cut applies only to the basic part.
• The commuted part is restored 15 years after the cut starts, and the full basic pension is paid again from then on.
• Family pension is not affected. It is worked out on the last pay, and nothing is recovered from the family if the pensioner dies before restoration.

Is commuting worth it?

That depends on what you would do with the money and on how long you expect to draw pension. Some numbers help:

• At age 61 the monthly cuts add up to the lump sum in about 8 years 3 months, ignoring interest. The cut then continues until restoration at 15 years.
• Seen as a loan repaid by 180 monthly cuts, commuting at 61 works out at about 9.0% a year. You can compare that with the interest on a loan you would repay with the money, or with what the money could earn safely.
• The lump sum is tax-free for government pensioners, the cut stops if the pensioner dies (the family repays nothing), and family pension is unaffected.

This calculator does not give advice. Your pension office or a financial adviser can help you decide. For the tax side, read tax on gratuity, leave encashment and commuted pension.