Why Central Government Employees Have to Wait 15 Years for Commuted Pension Restoration

Central government employees are given the option to convert or commute up to 40% of their pension into a lump sum payment upon retirement.

This option provides flexibility for employees who may need immediate access to a lump sum amount, either at the time of retirement or later.

However, opting for commutation means that the employee’s monthly pension is reduced by the commuted portion. The good news is that the commuted portion of the pension is restored after 15 years.

While this has been the established rule for years, there has been a long-standing demand from central government employees to restore the commuted pension earlier, specifically after 12 years. Unfortunately, this demand has not yet been met.

Why the 12-Year Demand Has Not Been Fulfilled

Central government employees have been requesting the restoration of the commuted pension after 12 years instead of the existing 15-year period.

Despite these consistent demands, this issue has not seen any changes in recent years.

The reason for this stagnation is that the 5th and 6th Pay Commissions did not recommend any changes to the commutation rules, despite the employees’ repeated requests.

These pay commissions did not see the need to alter the existing 15-year period for restoring the commuted pension.

Additionally, the Supreme Court’s ruling on the matter has played a role in maintaining the 15-year restoration timeline.

In an important judgment dated December 12, 1986, the Supreme Court upheld the restoration of the commuted pension only after 15 years.

Even though the 7th Pay Commission acknowledged the issue, it chose not to modify the restoration timeline, citing concerns over risk factors and the precedence set by several state governments that restore pensions only after 15 years.

A Look Back: History of Commutation of Pension Rules

The commutation of pensions has evolved over the years:

Before the 5th Pay Commission: The pension commutation allowed was one-third of the pension. However, no restoration benefit was available to retirees. The rules were less flexible and did not cater to the needs of employees who wished to receive a lump sum after retirement.
The 5th Pay Commission (1995): One of the significant changes made by the 5th Pay Commission was increasing the commutation limit to 40% of the pension. Additionally, it suggested a restoration of the commuted pension after 12 years. However, the government did not adopt this suggestion, and the 15-year restoration rule continued.
The 6th Pay Commission (2006): The 6th Pay Commission did not alter the percentage of commutation allowed or the period for pension restoration. It continued to follow the 40% limit for commutation and maintained the restoration period at 15 years.
The 7th Pay Commission (2016): Similarly, the 7th Pay Commission upheld the 15-year restoration rule, citing the risk factor and ensuring that some states were also restoring pensions after 15 years. The Commission highlighted that even though the commuted amount is recovered in 12 years, a 15-year restoration period was more practical for financial sustainability.

The Current Demand for 12-Year Restoration

As the 8th Pay Commission is still to be established and begin its work, central government employees continue to voice their concerns about the restoration timeline.

Employees’ representatives, including the staff side of the National Council of Joint Consultative Machinery (NC-JCM), have reiterated their demand for the restoration of the commuted pension after 12 years.

The NC-JCM has also suggested that the restoration of commuted pension after 12 years be included as one of the terms of reference for the 8th Pay Commission.

This demand is aimed at easing the financial burden on retirees and giving them more control over their pension funds, especially considering that many pensioners face increased financial needs over time.

The Outlook for the 8th Pay Commission

The establishment of the 8th Pay Commission is still awaited, but employees’ representatives are optimistic that the new commission will take into account the long-standing demands for earlier restoration of commuted pensions.

While it remains uncertain whether the 12-year restoration request will be approved, the issue is likely to continue being a point of negotiation in the coming years.

As central government employees await the formation of the 8th Pay Commission, the discussion around the commutation of pension remains relevant, and the call for policy changes is expected to persist.

Conclusion:

The commutation of pension option remains an essential facility for central government employees, providing them the flexibility to access a lump sum amount upon retirement.

However, the restoration of commuted pension after 15 years remains a contentious issue, despite repeated demands for change.

The 8th Pay Commission will likely have to address this demand for earlier restoration, keeping in mind the financial well-being of retired employees.