8th Pay Commission calculator: Why central govt pensioners seek 15-year commuted pension rule change

Central government pensioners get the option of commuted pension, where they can take up to 40% of their basic pension as a lump sum amount at the time of retirement. The commuted portion is then deducted from their monthly pension and is restored only after 15 years. However, as the 8th Pay Commission is working to prepare its report of recommendations, many employees and pensioners' associations strongly want to reduce the commutation period from 15 years to 11 to 12 years. Such bodies believe that the current pension commutation rules are based on four-decade-old parameters that no longer apply to current pensioners.

Key recommendations to 8th Pay Commission for commuted pension restoration

Organisation	Recommended pension commutation period
National Council of the Joint Consultative Machinery (NC-JCM)	11 years
All India Defence Employees' Federation (AIDEF)	11 years
Federation of National Postal Organisations (FNPO)	11 years
All India New Pension Scheme Employees Federation (AINPSEF)	10 years
Indian Railways' Technical Supervisors' Association (IRTSA)	12 years
Bharat Pensioners Samaj	11 years
All Pensioners Association	11 years

Source: Official memorandums submitted to 8th Pay Commission


Why employee & pensioner bodies demand reduced pension restoration period

National Council of the Joint Consultative Machinery (staff side), or NC-JCM, the main central government employee body, in its memorandum submitted to the 8th Pay Commission, says the 15-year pension restoration rules were framed nearly 39 years ago based on the financial and actuarial parameters prevailing at that time.

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The NC-JCM further claims that a lot of changes have taken place in that period, which include interest rates, life expectancy, mortality rate, death rate, and actuarial risk factors, which necessitate fresh values of the restoration period.

The NC-JCM presents its case with the following table.

Case for a pensioner aged 61 years (next birthday)

Particulars	Amount / Value
Commutation Factor	8.194
Amount Commuted	₹ 100
Commuted Value Received	₹ 9,833
Amount Recovered in 10 years	₹ 12,000
Amount Recovered in 15 years	₹ 18,000

What the NC-JCM says in its illustration is that if a pensioner commutes Rs 1,200/year of their pension at a Rs 100/month rate, the total lump sum amount they receive is just Rs 9,833 after applying a commutation factor of 8.194.

However, in just 10 years, at Rs 1,200/ year, the total amount that will be commuted will be Rs 12,000, which is way more than the lump sum value of Rs 9,833 they had received in the beginning. In 15 years, the amount that a pensioner will forgo will be Rs 18,000, nearly double the lump sum value the pensioner received.

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The NC-JCM says in the memorandum, “Thus, the entire commuted value is recovered within about 10 years and recovery beyond this period results in excess recovery from pensioners. Therefore, the restoration of commuted pension after 11 years would be reasonable.”

Avinash Rajput, secretary general, Bharat Pensioner Samaj (BPS), told ET Wealth Online that the 15-year restoration framework was introduced in 1986 and it was based on the commutation factor, interest rate, life expectancy and mortality conditions prevailing at that time.

Rajput says these parameters have changed substantially over the years. The BPS presented the following table to put its case before the 8th Pay Commission.

Parameter	1986	2008	2023
Commutation factor	10.46 at age 58	8.194 at age 60	8.194 at age 60
Indicative interest rate	12%	8%	7.10%
Average life expectancy	57.7 years	66.1 years	70.42 years
Death rate	11.30%	7.30%	7.30%
Mortality rate at age 61	0.2014 (1973 table)	0.01439	0.00695
Risk factor	—	0.05%	0.01%
Estimated total recovery period	15 years	11.454 years	11.254 years

Source: Bharat Pensioners’ Samaj

Rajput explains that while life expectancy has increased, mortality and interest rates have declined considerably.

“Consequently, the assumptions used to justify a 15-year recovery period require a comprehensive review,” says Rajput.

“Mortality tables are periodically revised to reflect changes in longevity and mortality patterns. However, the commutation table applicable to government pensioners has not been suitably updated for many years,” Rajput further says.

How decreased pension restoration period may benefit pensioners

Giving the example of a pensioner drawing a basic pension of Rs 35,000, the BPS claims that a reduced restoration period of commuted pension from 15 to 11 years will help them earn Rs 6.72 lakh more in four years.

Particulars	11-year restoration	15-year restoration
Basic pension	₹35,000/month	₹35,000/month
Monthly commuted pension deducted	₹ 14,000	₹ 14,000
Restoration period	11 years	15 years
Total deduction period	132 months	180 months
Total amount deducted	₹18.48 lakh	₹25.20 lakh
Original lump-sum payment	₹13.77 lakh	₹13.77 lakh
Additional amount withheld due to 4-year delay	—	₹6.72 lakh
Additional deductions	—	₹14,000 × 48 months = ₹6.72 lakh

Due to these changed values, nearly all leading employee and pensioner associations in their respective memorandums submitted to the 8th Pay Commission have urged the government to review Rule 10A of the Central Civil Services (commutation of pension) Rules, 1981, and revise the commutation tables using the current actuarial, demographic and financial data.