Will EPS pensioners get an option to sell or commute a part of their pension for a lump sum?

Employee Provident Fund (EPF) members going for the higher pension option under the Employee Pension Scheme (EPS) will pay the shortfall in contribution based on the actual salary of the past together with the accrued interest. They will also pay the higher contribution till they exit the scheme. As they are parting with a good amount of their savings, they will be left with lower retirement savings in the form of a lump-sum EPF balance at the time of retirement. What options do they have in case they need a lump-sum amount during the post-retirement years? Can they sell a part of their monthly pension and get a lump-sum amount?

Commutation of pension is a process under the Old Pension Scheme whereby pensioners are allowed to sell a part of their pension and receive a lump-sum amount that is actually the net present value of the monthly pension of the next 15 years. After completion of 15 years, the original pension is restored.

The quantum of lump sum that one receives after commutation depends on the commutation factor, which in turn is linked to the age of the pensioner. For instance, the commutation factor is 10.13 for a 60-year-old pensioner, which means that the lump sum amount will be 10.13 times of the annual pension forgone. So, if such a pensioner decides to sell Rs 10,000 per month from pension or Rs 1.2 lakh per annum, the lump sum amount will be Rs 12.15 lakh. After selling this pension, the monthly pension will be reduced by Rs 10,000 which will be restored after 15 years.


EPS 95 offered commutation till 2008
EPS pensioner used to get this option till September 2008. “The option to commute pension under the EPS Scheme was withdrawn via a notification in September 2008 and hence is no longer available,” says Vaibhav Bhardwaj, Partner, Induslaw.

All commutation processed till September 2008 have been restored after completion of 15 years. “Pensioners who had exercised the option to commute on or before September 25, 2008, will now have their pensions restored to the original amount upon completion of 15 years from the date of commutation,” says Bhardwaj.

However, since September 2008, the option for pensioners to commute pension has not been restored till date. “Currently, the EPS Scheme does not envisage commutation after the omission in 2008,” says Pooja Ramchandani, Partner, Shardul Amarchand Mangaldas & Co.

No option of commutation for current EPS pensioners
The accumulated EPS contributions over the years along with the accrued interest is not returned to the legal heirs of the pensioner and spouse when they both are dead. The only way a pensioner could have gotten some emergency lump-sum money when going for EPS pension was through the process of commutation. The absence of such flexibility is a major setback for EPS 95 pensioners.

Why government should consider restoring this option
Can the EPS 95 pensioners expect a revival of this commutation option? “The government typically retains flexibility and commutation option so that it can be reintroduced in future depending on the needs of people,” says Sonam Chandwani, managing partner at KS Legal & Associates.

The EPS pensioners are currently getting a different treatment than what the pensioners under the Old Pension Scheme are getting. To bring parity between these groups, it is a just expectation that the government will consider giving this flexibility to EPS pensioners as well. “The government would of course have the legislative power to reintroduce the option of commutation in case it is deemed appropriate from a policy perspective,” says Bhardwaj.