POSTED BY December 13, 2010 6:04 pm COMMENTS (2)

ONi am a retired Bank official who has recently opted for the pension with commutation.It is said that since i have availed commutation the full pension will be restored only after 15 years from the date of commutation.My question is what is the calculation /rationale for restoring full pension after 15 years.The commutation is based on the age of the employee.If a peson retired at the age of 60 he will get commutation for 117.72 months only i.e.9.81 years.While restoration will be only after completion of 15 years.

Dear Mr. SHASHANK,

Hi. Great to have your learned inputs.

I am 58 years in age and a Government officer. Kindly apprise regarding 40% pension commutation. Do I do it or not. Why I ask is because:-

01. I will retire @Rs. 150000 basic in 7th pay commission.

My pension basic will be 75000. If I commute 40% of 75000 then my pension basic will be 45000.

02. Will the half yearly Dearness Allowance calculated on 75000 OR 45000.?

03. In case of say the “Family Pension” coming into effect on demise, will the family pension basic be 50%

of 45000 = Rs.22500. ? If I do not commute 40% then Family pension will be 50% of Rs.75000= Rs.37500

04. For “Family Pension” again is half yearly Dearness Allowance calculated on 45000 OR 22500.?

05. In the case if I do not Commute 40% of my pension basic of 75000 then will the “Family Pension” be 50%

of 75000 = Rs.37500?

06. Again will the half yearly Dearness Allowance calculated on 75000 OR 375000?

07. MOST IMPORTANTLY- Does it make sense “NOT to commute 40%” in light of the Quantum of DIFFERENCE between the revised basics of main pension and family pension thereof?

08.In light of the corpus the Government pays on Commuting 40% , which I believe is approximately 90 times, Sir,

What is the “break even Period” in years?

Look forward to your learned inputs,

Anand

Lucknow

Rajni Kant,

Commutation is akin to get a present value of your future receivables. The future receipts are discounted at a particular discount/interest rate to arrive at the present value of the future money stream. If they are saying that they would be restoring your pension to full amount after 15 years that means they have discounted only 15 yrs future receipts. Present value of 1 rupee to be receivd at the end of a year for 15 years would be 9.81 rupees if the discount rate is @ 6.75%. I would say this is a very very fair discount rate because if the had discounted at a say@ 8% then the present value would have been much less than 9.81

So actually you should be happy for that because you can increase this money , which you have received in lumpsum and that too taxfree ,at a much faster rate than the said discount/interest rate.

You should be actually happy instead of being sad about the situation!

shashank