Pension is a component safety net of retirees, which enables them to enjoy their golden days in peace. Nevertheless, most pensioners choose to Commute their Pension, and this gives them a lump sum as opposed to monthly payments of their pensions. These people can later apply the Restoration of Commuted Pension which will restore their pension to the original level after the predetermined commutation period. Although this process is beneficial to a number of individuals, there are some exceptions to this where people might not claim the restoration of their commuted pension. This paper talks about these exceptions, explores the complexities of Commutation of Pension and points to situations in which restoration is not available.
Knowledge Commutation of Pension.
Commutation of pension refers to the process of using a portion of pension as a lump sum, which can be considered as a one-time payment, which is equivalent to diminishing the monthly pension during a given period. This mechanism provides liquidity to those persons who might require large sums of money to meet unplanned needs such as loan repayment, post-secondary education of children, or emergency medical cases. As an example, when an employee of the government pensions it off in part they will get a lump-sum payment now and the rest in regular monthly payments together with dearness relief (where relevant).
The commuted amount will be calculated using actuarial tables and will vary based on the age of the pensioner, the commuted amount and the commutation factor. As an example, when a 60-year-old man decides to travel half a day with his pension, the calculation may seem to be the following:
- Basic monthly pension: ₹40,000
- Commuted percentage: 40% = ₹16,000
- Comm Factor (according to actuarial table at age 60): 8.194
- Commuted lump sum: ₹16,000 x 12 x 8.194 = ₹15,72,288
After commutation a lower monthly pension of ₹24,000 ( 40,0000 -16,0000) is received. This commuted portion can be restored, but not before 15 years since the date of commutation.
Pension Commuted Pension Restoration Explained.
The commuted pension is restoring a mechanism whereby the pensioner gets qualified to receive the entire pension after a pre-determined period. After the 15-year commutation period elapses, the commuted amount in a pension is restored. As an illustration, in the above scenario, given that the 60-year old pensioner commuted 16000 (40 percent) of a 40000 monthly pension, he gets the lower monthly pension of 24000. The entire amount of 40,000 is reinstated monthly on completion of 15 years (75 years old) with increasing inflation or changes in dearness allowance.
Although the benefits of restoration among pensioners are enormous, there are certain exceptions in which such a facility is not available to people. We shall take these exceptions up in a closer manner.
Who Not Can Claim Restoration of Commuted Pension Exceptions?
1. Non-Pensionable Posts
Employees in non-pensionable services that might not be within the scope of pension programs cannot be entitled to receive commuted pension back. As an example, workers in organizations of the private sector or those in jobs that do not have any form of retirement benefits will not be eligible of this facility.
2. Pensioners not opting Commutation.
In commuted pensions, restoration is only possible to those who have previously availed commutation. When a pensioner has not paid percentages of his/her pension, the restoration procedure is not applicable. The issue of reinstatement is not relevant without the first reduction in monthly pension.
3. Cases where commuter pension has been full paid already.
An example is a pensioner who commuted his monthly pension during the 15 years. Here they have already depleted the amount that was commuted over the anticipated period and it can no longer be restored. Nonetheless, this exception can be conditional upon the government regulations or company policies.
4. Death Before Its Time, the Pensioner.
Commuted pension can only be restored at the expiry of the commutation period, which is 15 years as a rule. Restoration benefit is not realized to a person in case a pensioner dies before this period. But the family pension regulations can be possible, according to the organization or government regulations.
5. Those who have Non-Standard Retirement Policies.
Some of the employees or staff that are covered by special contractual or contributional retirement schemes may be subjected to limitation in commutation of pension and its reinstatement. E.g. the individuals in particular defense organizations or individuals who choose special voluntary retirement schemes (VRS) or contributory pension schemes such as the National Pension Scheme (NPS) might not be qualified under this facility.
6. Lack of Legal Beneficiaries.
The restoration of commuted pension may not be taken into consideration in the rare situations where a pensioner who has died without full 15 years of commuted pension payment without leaving any legal beneficiary or family claimant.
7. Pension Forfeiture Cases
Under the circumstances of some disciplinary actions or even criminal charges against the retiree, pension may be forfeited. In any case where pension is lost in whole or part, the commuted portion may not be restored.
Effects of Exceptions to Pensioners.
Lack of means to reinstate a commuted pension may have a compounding effect on the finances of retirees particularly given the increase in the cost of living and medical cost as age advances. To reduce the financial burden during retirement, pensioners should be knowledgeable on the conditions that are associated with commutation and restoration.
Conclusion
restoration of commuted pension is a good provision that guarantees that pensioners get their full pension value after specified period of commutation. But, as noted in the discussion above, there are some exceptions in which pensioners are not only not eligible to restoration, but lose this right. These are the cases of pre-mature death, non-pensionable employment, non-standard retirement schemes and pension forfeiture. Retirees and their family should be very keen to know the conditions of the commuter and in cases where the restoration cannot be done, the amount of losses to be incurred.
Disclaimer
The author has presented the article as information but not professional financial advice. People are advised to study their commutation and restoration benefits either on their own, or through a financial consultant. Financial decision-making and investments are associated with risks. Before you take any financial decision in the Indian context, there are several considerations that you need to carefully look into in the context of your financial management.
Summary
Restoration of commuted pension is a benefit that enables the pensioners to have their full pension restored upon meeting a fixed commutation period or 15 years on average. Nevertheless, there are obvious exceptions where this restoration is not available and results in financial consequences of the retirees. An example is that non-pensionable sectors or non-standard retirement policies are also not eligible to this facility. Also pensioners that do not choose to have their pension commutated or those that lose their pension through disciplinary proceeding or criminal proceedings do not qualify to be restored as well.
Restoration of the commuted pension cannot also be done in instances that a pensioner dies before the commutation term has elapsed and there are no legal beneficiaries. The economical effect of refused restoration may be considerable. As an example, a pensioner who suffers a loss of 15, 000 a month after a restoration can experience a loss of 18 lakh shortfall within a period of 10 years.
