COMMUTATION OF PENSION: 8TH CPC RULES
Revised 40% Lump Sum Calculation & Restoration Timelines
Upon retirement in the year 2026, one of the most critical financial decisions for a Central Government employee is the Commutation of Pension. This provision allows retirees to receive a portion of their monthly pension as a lump-sum payment upfront, which can be vital for settling post-retirement liabilities like housing loans or family weddings.
Statutory Source & Authority:
Governed by the Central Civil Services (Commutation of Pension) Rules, 1981, specifically Rule 5, and updated in line with the 8th Pay Commission’s revised pay scales for 2026.
The 40% Commutation Rule
Under existing rules, an employee can commute up to 40% of their basic pension. With the 8th Pay Commission revising the basic pay, the lump sum amount received will see a significant increase. It is important to note that the monthly pension is reduced by the commuted portion until it is restored.
| Key Feature | Rule/Detail |
|---|---|
| Maximum Limit | 40% of Basic Pension |
| Restoration Period | 15 Years |
| Commutation Factor | Based on age next birthday (Table-based) |
2026 Calculation Formula
Lump Sum = (40% of Basic Pension) × 12 × Commutation Factor
*Commutation factor for age 61 is 8.194 (as per current notified table).
Check how much lump sum you will receive at 2026 Pay Scales!
🔍 Expert Analysis & Cautions:
- Medical Examination: If you apply for commutation after one year of retirement, a mandatory medical board examination is required.
- Restoration: Full pension is restored only after 15 years. This is a long-term commitment that reduces your monthly liquidity.
- DR Benefit: Dearness Relief (DR) is always calculated on the Full Basic Pension, not the reduced (commuted) amount.