Defense person gets a lump sum amount at the time of retirement which is very helpful for him to settle down after retirement. At the time of retirement, the defense person gets pension, service gratuity, AFPP fund, pension commutation, Army Group Insurance Fund (AGI), leave encashment and other adjustments. Defense pension commutation is optional at the time of retirement. Defense Persons can commute up to 50% of their pension. In this post we will talk about Defense Pension Commutation.
At the time of retirement, the most important question in front of the defense person is whether he should make 50% commutation of his pension or not. We will tell in detail about whether Defense Person has any benefit in commuting 50% pension or not.
Defense Persons can commute 50% of their Basic Pension. Service pension is 50% of Basic Pay + MSP + Class Pay + X Group Pay at the time of retirement and Dearness Allowance (Dearness Allowance) at the time of retirement
For example, if the basic pay of a defense person is Rs 40000 and class pay is Rs 300, then the calculation of his service pension will be as follows
40000 + 5200 + 300 ÷ 2
= 45500 ÷ 2 = Rs 22750
Defense personnel also get DA on this pension.
Now let's talk about the pension commutation formula. DA (Dearness Allowance) is not added to the pension commutation. Assuming that 50% of the defense pension is commuted by the defense person, then the amount to be deducted per month in his commutation is as follows:-
22750 ÷ 2 = Rs 11375
That is, the defense person will have to pay Rs 11375 per month in commutation for 15 years. The amount to be deposited in 15 years is as follows.
11375 X 12 months X 15 years = Rs 20,47500
Defense Person also gets the DA in pension at that time and dearness allowance is available on full pension i.e. he will get dearness allowance at Rs 22750. Assuming DA at the time of retirement is 10%, then dearness allowance on pension will be as follows.
Full Pension X Dearness Allowance ÷100
22750 X 10 ÷ 100 = Rs 2275
The total pension to be received after 50% commutation will be
11375 + 2275 = Rs 13650
Just now we have seen how much money is deducted per month in pension commutation and how much pension the defense person gets after commutation. Now we will talk about how much amount gets together at the time of retirement after doing 50% commutation and whether there is any benefit in commutation or not.
While doing all this calculation, we will take the above mentioned pension as an example.
Defense Pension Commutation Formula
From the above calculation, we have seen that on doing 50% pension commutation, the defense person has to deposit a total of Rs 2047500 in 15 years. Now let's talk about how much money the defense person gets for commutation at the time of retirement.
For this, there is a pension commutation formula, from which we know the amount we will get from commutation. The pension commutation formula is as follows.
50% of pension X 12 X Purchase value on the age next birthday
The purchase value is very important in the pension commutation formula. The purchase value table is given in the photo below. The age of the next birthday is taken at the time of retirement in the purchase value. If you are retiring after turning 35, then the purchase value will be taken at 36 years.
From this commutation formula, we will find the commutation amount received by two defense personnel. A Defense Person who retires at the age of 35 and a Defense Person who retires at the age of 50, only then we will know whether there is benefit in commuting pension or not. Let us put the value in the pension commutation formula.
Commutation amount of the person who retires at the age of 35 =
11375 X 12 X 9.136 (36 Years Purchase Value)
= Rs 1247064
Commutation amount of the person who retires at the age of 50 =
11375 X 12 X 8.808 (Purchase Value of 51 Years)
= Rs 1202292
It is clear from the amount of pension commutation given above that two persons commute for the same pension (Rs 11375) for 15 years but the person who is retiring at the age of 35 is getting Rs 1247064 while at the age of 50 years. The person retiring is getting Rs 1202292.
One thing is clear from this calculation that Defense Persons who retire at a young age have more benefit in pension commutation. Now let's talk about the pension commutation benefit.
8% interest is charged in pension commutation and 50% pension is commuted till 15 years. After 15 years ESM starts getting full pension. All the information related to pension commutation has been covered in this post.