The labour ministry has implemented retirement fund body EPFO‘s decision to restore pension commutation under the Employees’ Pension Scheme, a move that will benefit 6.3 lakh pensioners.
Pension commutation refers to part-withdrawal of fund in advance by a subscriber, who then gets reduced pension amount for 15 years. With the ministry’s latest decision, such pensioners would receive their full pension after completion of 15 years.
The move is expected to result in a substantial increase in pension for those Employees Provident Fund Organisation (EPFO) pensioners who retired before 26, September, 2008 and had opted for partial commutation of pension which is about 6.3 lakh pensioners. The full/higher pension benefit will be restored after 15 years from the date of receiving commuted pension at the time of retirement.
As per Employees’ Pension Scheme (EPS) rules, an EPFO member who retired before September 26, 2008 could get maximum one-third of his/her pension as lump-sum i.e. commuted pension and remaining two-thirds was paid as monthly pension to an employee for his/her lifetime. As per current EPF rules, EPFO members does not have an option to receive the commutation benefit.
As per the EPS, a member eligible for pension was allowed to take part of their monthly pension as lumpsum in advance. This is called commutation of pension. As per the previous rules an employee could commute (or take as lumpsum) up to one third of the monthly pension and receive 100 times of the amount as lumpsum and opt for reduced monthly pension for the rest of the life.
So, for example, if the pension was ₹6,000 and a person opted for commutation of pension then the commuted value, that he will get as lump sum will be 6000*⅓*100 equals to ₹2,00,000. The monthly pension will get reduced to two third that is 6000*⅔ equals to ₹4,000.
If the person opted for commutation, the pension was reduced for the entire life to two-third.
The new notification dated February 20, 2020 will benefit such employees as it would lead to restoration of full (higher) pension after 15 years. Therefore, an individual who retired on April 1, 2005, would be eligible to receive the benefit of higher pension after 15 years i.e. from April 1, 2020.
An EPFO panel had recommended for amendment in EPS-95 (Employees’ Pension Scheme 1995) for restoration of commuted value of pension to pensioners after 15 years of drawing commutation.
Earlier, under EPS-95, members were allowed to commute one-third of their pension for 10 years, which was restored after 15 years. This facility is still available to certain categories of government employees.
So, if a pensioner one opted for commutation of pension in August 2008, he or she will get increased pension from 2023. Those who had opted for commutation in January 2005 or before would have already completed 15 years will get increased monthly pension.
