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A very important news has come to light regarding pension commutation for central employees and pensioners. Often at the time of or after retirement, pensioners are confused as to which date the commutation of their pension is legally considered final. The Department of Pension & Pensioners’ Welfare (DoP&PW) has issued clarification on the provisions of the Central Civil Services (Commutation of Pension Rules, 1981) clarifying the exact dates on which commutation becomes effective under various circumstances.
Fixing the effective date of pension commutation is extremely important because on this basis the commuted value of lump sum is calculated and the countdown for pension restoration starts after 15 years. This department, which comes under the Ministry of Personnel, Public Grievances and Pensions based in New Delhi, has made these rules completely transparent for different categories of employees.
Under Rule 5 of the Central Civil Services (Commutation of Pension) Rules, 1981, any government employee has the right to take a maximum of 40 percent of his basic pension as a lump sum. If the employee wishes, he can also choose less than 40 percent share.
For example, if an employee’s basic monthly pension is fixed at Rs 50,000 and he opts for 40 per cent commutation, then instead of Rs 20,000 he gets a lump sum capital amount as per the fixed commutation formula. After this, the concerned pensioner receives a reduced basic pension of Rs 30,000 every month. Keep in mind that Dearness Relief is always calculated on the full basic pension of Rs 50,000.
According to the official clarification from DoP&PW, the date of finalization of commutation depends on when the application is made and whether the case requires medical examination or not.
If the employees retiring on superannuation submit the application in Form-1 before retirement, then their pension commutation is considered final from the day immediately following the date of retirement. Whereas if an employee applies under Form-1A in the category without medical examination after retirement, then the commutation becomes final from the date on which the Head of Office receives the duly filled application form.
On the other hand, in cases where testing is mandated by a medical board or medical authority, the process is slightly different. In such cases when the competent medical authority puts his signature on Part-3 of Form-4 and declares the applicant medically fit, the date of the same signature is considered as commutation final. Further, if a retired employee has applied under Form-2, the date of receipt of intimation to the pension disbursing authority (Bank or Treasury) becomes relevant.
The amount of pension deducted under commutation is not deducted for life. As per Rule 10-A of the CCS (Commutation of Pension) Rules, 1981, the commuted portion is automatically restored after the completion of 15 years (180 months) from the date on which actual deduction in pension begins.
DoP&PW specifically underlined that this time limit of 15 years does not automatically count from the date of retirement in every case. Its counting starts from the month or date when the commutation amount actually starts being deducted from the pension or when the lump sum payment is released. As soon as 15 years are completed, the pensioner starts getting his full 100% basic pension again.
Under Rule 12, employees retiring on normal superannuation, receiving retirement pension, or receiving pension after absorption in government undertakings are exempted from medical examination. Provided that he has duly submitted the application in the prescribed format within one year of his retirement.
If a pensioner is not able to apply within 1 year of retirement and seeks commutation after the expiry of the one year time limit, he will have to compulsorily appear before the Medical Board. Additionally, in cases of employees receiving Invalid Pension, Compassionate Allowance and Compulsory Retirement as penalty, commutation is also not allowed without medical board examination and fitness report.
If any disciplinary or judicial proceedings are pending against a Central Government employee at the time of retirement and he is being given only provisional pension, then he is not eligible to commute the pension during this period.
As per DoP&PW guidelines, commutation cannot be accepted until the departmental inquiry or judicial case is completely concluded and the final regular pension order is issued. After the proceedings are over and regular pension is authorised, the employee can apply under Rule 13. If the employee applies within 1 year of the issue of the order for regular pension, he is provided the full benefit of commutation without any medical examination.