Government’s new notification will allow EPFO members to get higher pension
On 20 February the government notified a change in the Employees Pension Scheme (EPS), 1995 which is likely to benefit over 6 lakh pensioners as per reports. According to the notification, eligible members of Fund Organisation (EPFO) will get normal pension if they had opted for commutation of pension. Lets understand in detail what is commutation of pension and how and who will benefit from this.
What is commutation of pension
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.
However, the option of commutation of pension was withdrawn in September 2008. “The erstwhile Para 12A of the EPS 95 scheme provided for commutation of monthly pension. A lumpsum of 100 times of 1/3 of the monthly pension was permitted, however only 2/3 of the monthly pension could be drawn as regular pension. This provision was deleted effective 26 September 2008 considering the actuarial deficit under the EPS 95.” said Saraswathi Kasturirangan, Partner, Deloitte India.
So, from September 2008, one could not opt for commutation of pension that is take part of their monthly pension as lumpsum.
Who will benefit?
So, now as per the new notification those who opted for commutation prior to September 2008 (when the option of commutation of pension was withdrawn), will get increased pension, as per the above example ₹6,000 after the completion of 15 years from the date of such commutation.
“The current notification enables enhancement of the pension to normal levels beyond 15 years. In other words, employees who have been drawing 2/3rd pension because of the earlier commutation will now be eligible for the full pension beyond 15 years,” said Kasturirangan.
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.