Central government employee may convert up to 40% of his pension into a lump sum payment. Government clarifies rules of commutation for the employees.
The Union government has clarified the regulations for pension commutation in situations where the pension has been revised as a result of the 7th pay commission's recommendations or when a request for commutation was not made at the time of retirement but rather after a lapse of time. On October 25, 2022, the Department of Pension & Pensioners' Welfare (DoPPW) published a notification that clarified the situation.
An employee of the central government may convert up to 40% of his pension into a lump sum payment. The lump sum amount is determined in accordance with the commutation table. There have been some questions recently about whose pension—the one authorised at the time of retirement or the one changed later and payable at the time of commutation application—central government personnel are permitted to commute.
In order to make this clear, the DoPPW wrote in its notification that "As per Rule 10 of CCS (Commutation of Pension) Rules, 1981, an applicant who has commuted a percentage of his final pension and after commutation his pension has been revised and enhanced retrospectively as a result of government’s decision, the applicant shall be paid the difference between the commuted value determined with reference to enhanced pension and the commuted value already authorised." It also mentioned that the pensioner is not required to submit a fresh application for the payment of the difference. (Also Read: 7th Pay commission: Government clarifies details on DR payment)
How would this action help retirees from the central government?
"Any pensioner, who has chosen to commute their pension post-retirement but the same has been enhanced subsequently with retrospective effect, will be entitled to the difference between the amount paid and the amount payable per the enhanced value," said Pratyush Miglani, Managing Partner, Miglani Verma & Co.
"Assuming for instance, a central government employee's total pension payable for 10 years is Rs 20,00,000. Now, he commutes 40 per cent of his pension at once and the value paid accordingly is Rs 8,00,000. Subsequently, his pension is revised and the total pension payable for the same duration is now Rs 25,00,000. As per the revised pension, he must have been paid Rs 10,00,000. As clarified by the said Office Memorandum, he will be entitled to an additional Rs 2,00,000," explained Miglani.
Additionally, in accordance with the relaxation of Rule 10 of the CCS (Commutation of Pension) Rules, 1981, pensioners who retired between January 1, 2016, and August 4, 2016, i.e. The date on which orders for revised pay/pension based on the recommendations of the 7th CPC were issued, may have the option of choosing not to commute the pension that has become additionally commutable on revision of pay/pension on implementation of the 7th CPC's recommendations.
This means that a central government employee who had their pension boosted as a result of pay commission recommendations will now have the choice to pursue further commutation.
The Dearness Relief is payable on the original basic pension before commutation or such basic pension before commutation as changed on implementation of recommendations of the Pay Commission, etc., according to the Department of Pension & Pensioners' Welfare. After deducting the commuted pension, it is not payable on the decreased pension. It clarified this in a different notification that was released on October 25, 2022.
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