How commutation works
Commutation lets you exchange part of your monthly pension for a one-time lump sum:
Lump sum = basic pension × commuted % × 12 × commutation factor
- You can commute up to 40% of your basic pension.
- The commutation factor depends on your age on your next birthday after the commutation becomes effective — someone retiring at 60 uses the factor for 61.
- The commuted portion is deducted from your pension and restored after 15 years.
- Dearness relief continues on your full basic pension, not the reduced amount.
Worked example
Basic pension ₹40,000, commuting 40%, age next birthday 61 (factor 8.194):
- Commuted portion: ₹16,000 a month
- Lump sum: ₹16,000 × 12 × 8.194 = ₹15,73,248
- Monthly pension after commutation: ₹24,000 + DR of 63% on ₹40,000 (₹25,200) = ₹49,200
- After 15 years, the ₹16,000 is restored.
Commutation factors (age next birthday)
| Age | Factor | Age | Factor | Age | Factor |
|---|---|---|---|---|---|
| 50 | 8.846 | 58 | 8.446 | 66 | 7.591 |
| 55 | 8.627 | 59 | 8.371 | 70 | 6.897 |
| 56 | 8.572 | 60 | 8.287 | 75 | 5.872 |
| 57 | 8.512 | 61 | 8.194 | 80 | 4.812 |
| 62 | 8.093 |
These are the values for a pension of ₹1 a year (CCS Commutation of Pension Rules, based on LIC 1994–96 mortality tables at 8% interest). The calculator includes every age from 20 to 81.
Should you commute?
The lump sum equals about 8.2 years of the pension you give up (at age 61), while the cut lasts 15 years. In pure rupee terms you give up more than you receive — the trade-off makes sense if you can use the lump sum well:
- Clearing debt (such as a home loan) at a higher interest rate than the implied cost.
- Investing it safely — for example, the Senior Citizen Savings Scheme at 8.2% — or for a specific need like a child's education.
If you do not have a clear use for the money, an uncommuted, inflation-linked pension is valuable insurance against living long. Note that pensioner associations have argued the 15-year restoration period should be shortened to reflect current interest rates; the matter has been before courts and committees, so check for any change before you decide.
The lump sum is tax-free for government employees.