• By Shreyansh Mangla
  • Tue, 19 Aug 2025 07:43 PM (IST)
  • Source:JND

8th Pay Commission: The issue of pension commutation has gained limelight again as the terms of reference (ToR) for the 8th Pay Commission are being finalised. When government employees retire, they can choose to take a large, one-time payment called a "pension commutation". In return, their monthly pension is reduced for the next 15 years, after which the pensioner begins receiving the full amount. Now, employees are demanding that this period be reduced to 12 years.

All eyes are on the 8th Pay Commission which will decide on the new rules for government employees regarding their pay and pensions. There is speculation that the commission might recommend a reduction in the total pension restoration period from 15 to 12 years. All the employees who have raised a voice against the 15-year wait period are now looking hopefully for a change. Will this change take place? Let us learn more about it.

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1. What is Pension Commutation?

Pension commutation means that a central government employee can receive up to 40 per cent of their pension as a lump sum amount at retirement. In such a situation, the monthly pension is reduced for a 15-year period. The original sum is restored after this period.

2. Past Attempts To Change Pension Commutation Period

The 5th Pay Commission recommended that the commuted pension portion be restored after 12 years, but the government did not accept this. Even two consecutive commissions could not propose any changes to the existing "15-year" rule.

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3. Judicial Perspective

In 1986, the case of Common Cause vs Union of India, the Supreme Court observed that the pension commutation period was kept 15 years in view of the risks. The apex court stated that there was a possibility of an employee passing away before the amount was recovered. In 2019, the Delhi High Court reiterated the Supreme Court’s stance on 15-year period, stating it was beyond the scope of the judiciary.

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4. Current Demands and Government’s Stand on the Issue

The central government employee unions have long been advocating for a reduction from a 15-year period to a 12-year one, but this issue was only recently raised in the 8th Pay Commission's terms of reference. While the employees hope there would be a change in the 8th Pay Commission, the government is adamant about the 15-year period, stating that the decision was made based on expert advice and the government sees no reason to change the current policy, especially since previous commissions have also continued to uphold the rule.