Pensioners Who Opted for Commutation To Receive Higher Pension

According to a notification sent by the labour ministry dated 20 February 2020, the full pension will be restored after 15 years of their retirement under the Employee Provident Fund (EPF) scheme for pensioners. The notification is valid for those pensioners who have commuted part of the pension at the time of retirement. 

The move brings in a substantial increase in pension for those EPF pensioners who retired before 26 September 2008 and opted for partial commutation of pension, aggregating to about 6.3 lakh pensioners. The full pension will be restored after 15 years from the date of receiving commuted pension during retirement.

The Employees’ Pension Scheme (EPS) states that an EPFO member who retired before 26 September 2008 could get a maximum of one-third of the pension as a lump sum. The commuted pension and the remaining two-thirds of the pension will be paid as monthly pension through the employee’s lifetime. As per the current EPF rules, the EPFO beneficiaries do not have the option to receive the commutation benefit.

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The proposal to restore full monthly pension was approved by the EPFO in the Central Board of Trustees meeting held on 21 August 2019. At the time, EPFO had stated that its Central Board of Trustees has approved the proposal to amend EPS-95 for the restoration of commuted value of pension after 15 years of drawing commutation. 

Technically, para 12A of the Employee Pension Scheme states that an employee can claim commuted pension (lump sum pension) instead of a monthly pension. A maximum of one-third of the total pension amount could be drawn as a commuted pension. The remaining two-thirds of the total pension amount would be received as monthly pension. Upon commutation, the employee was eligible for a one-time lump sum benefit of 100 times the monthly pension so commuted.

The commutation under para 12A was disallowed effective from 26 September 2008. However, the para 12B added as per the latest notification states that an employee who had availed commuted pension under the para 12A will receive the normal full monthly pension after 15 years.

For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in

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