What is Commutation of Pension?

Commutation lets a retiring employee exchange a slice of their future monthly pension for a lump sum today. It's a one-time, irreversible choice made at retirement, so it's worth understanding both what you gain immediately and what you give up month to month.

What commutation is

Instead of drawing your full pension every month for the rest of your life, you elect to "commute" a portion of it — the government pays you the present value of that portion up front, as a lump sum, calculated using an age-linked commutation factor. Your monthly pension is reduced by the commuted portion from then on.

How much can be commuted

Under CCS (Pension) Rules, 1972, a retiring employee may commute up to a prescribed maximum fraction of their basic pension — commonly one-third — subject to medical fitness where required for higher fractions. The lump sum paid is the commuted amount multiplied by the commutation factor applicable to the employee's age next birthday at the time of retirement.

When it's restored

The commuted portion is not lost forever. After a fixed restoration period — commonly 15 years from the date the reduction began — the full, un-commuted pension is restored, and the pensioner draws their entire monthly pension again, including any dearness relief that has accrued in the meantime.