WHAT IS COMMUTATION OF PENSION ?
This is the only source of lump sum amount available to a pensioner at the time of retirement other than PF and Gratuity. Accepting commutation is individual pensioner’s choice. Normally, it is advisable for a young defence pensioner to opt for the commutation before retirement. The application for commutation must be given before retirement or within one year from the date of retirement. Defence pensioners are given commutation only once.
45% of the Pension (for PBOR) & 43% (for Officers) (pre 2006 pensioners) is deducted from the pension, multiplied by a factor based on the age and purchased for 12 years and paid in lump sum. The commuted amount is refunded after 15 years.
This amount is a great support to the young pensioner. Most of the PBOR pensioners do not bother as to how the amount is calculated. It is a general belief that the computerized PPOs are always correct, provided the basic data entered are correct. Therefore every pensioner must verify the basic data such as Name, date of birth, number, rank, date of enrollment, rank, date of discharge, total service, name of spouse, bank account number etc., before accepting the payment.
Nowadays, the PPOs are sent well before the date of commencement of pension. The Original PPO (The Bank copy) is directly sent to the bank by the Record Office and a carbon copy of the PPO (Called pensioners copy) is sent to the pensioner by Registered post by the record office. Every pensioner should read it thoroughly take few Xerox copies and keep it safe.
Now on the date of commencement of pension, one can report to the bank with PPO copy and insist for payment of gratuity and commutation. The very purpose of sending the PPO in advance is to enable the pensioner to get the gratuity and commutation on the date of commencement of pension. But none of the banks pay on the date of commencement of pension, even if the PPO is held with them. This is because, the pensioners are not aware of the rules regarding the payment of commutation and gratuity, and therefore the banks are exploiting the situation. Very few know the rule that if the gratuity is delayed beyond a period, the pensioner can claim delayed interest @ 12% p.a. from the person responsible for payment.
Then comes the date of reduction of the commuted value from the pension. Clear printed instructions are given at the back side of the PPO. Every pensioner must make sure that the reduction in the pension is made from the date the capitalized sum is credited to the pensioner’s account. If the payment of commutation is delayed for any reason, then please make sure that the reduction in pension is made from the date of payment of commutation and not from the earlier date or from the date of commencement of pension. This is very important. I have come across some pensioners, whose PPOs were missed in transit. Due to this there was considerable delay in payment of commutation, but the banks reduced the pension from the date of commencement of pension instead of reducing from the date of payment of commutation. Banks are doing without knowing the rules. But if you do not object, you will be the loser.
For example, let us take the Pension is Rs.5000 and the date of commencement is 01.01.2008 and the amount commuted is say Rs.2250. Due to some reasons, if the PPO is delayed say for 10 months and the bank pays your commutation on 31.10.2008. In this situation you must make sure that you get full pension of Rs.5000 with D.R. from 01.01.08 to 31.10.08 without any reduction of Rs.2250 from your pension. If you are not careful, the bank will reduce a sum of Rs.22,500 for ten months (2250 x 10) from your pension arrears. I have seen even commissioned officers fail to notice this point while getting first payment. Once you have missed this amount it is very difficult to get it back.
Supposed if the capitalized value was paid on 15th of a month, then the full pension will have to be paid for 14 days of the month and remaining days reduced pension can be paid.
Now I request all the readers to verify their date of payment of the capitalized sum with the entries in the bank pass book and if you find a delay of more than one month from the date of commencement of pension and the amount of pension is reduced, please make a claim to the Bank for the refund of the amount reduced.
These retirement benefits (Commutation, PF and Gratuity) are not taxable. The absolute date of commutation means, the date on which the competent authority accepts and signs the commutation application.